Thinking of making January 1 the day you start paying off your debt? You’re not alone: ââAmericans tried their best to save in 2021 but according to a recent survey By MassMutual, nearly half (48%) of Americans will use the money they put aside to pay for vacations. Up to 59% of people who have used their credit card to pay for gifts and travel fear they will not pay it off for at least six months.
And anyone who’s ever struggled with paying off debt knows it’s a lot more complicated than just budgeting. According to Melanie Lockert, author of Dear debt and host of The Mental Health and Wealth Show, paying for the past can be emotional. âAll of that accrued interest makes it look like you’re taking two steps forward and one step back to pay off your debts,â she said. âGetting out of debt also requires that you do something different from what got you into debt, which is difficult for people at first. Here is how to do it.
Step 1: Break it down into small steps
Where does the debt come from? If you zoom out, you can start to brush aside the shame and start looking at it with a more critical eye. For example, is the debt an income issue, an expense issue, or something else like medical debt? They are different things with different solutions, says Lockert.
Once you know your overall debt, monthly payments, and interest rates – and have them written down – the next step is to take a look at your take-home pay and living expenses and see if there’s a chance to increase. the debt. Start small with your steps and work your way up. For example, if you are in arrears with your payment, set a goal of making the minimum payment. If you’re already making minimum payments, commit to paying more than the minimum.
Are pen and paper or a spreadsheet too old-school? Look for tools and apps that can put all the numbers in one place. Lockert recommends Personal capital, an app with free personal finance tools to track your budget, including your savings and investments. Personal Capital earns its money by charging for wealth management services for individuals with over $ 100,000 in investable assets. âI think Personal Capital is a great tool for tracking finances,â she says.
Free budgeting tool
Forbes gives this free money tracking and budgeting app its highest score among “best budgeting apps,” at 4.5 out of 5 stars, noting that it is especially good for investors.
Having said that, she adds that, âI think the most important thing is to stay consistent and know which tool (or not) will work best to keep you motivated and motivated. So, other recommended budgeting tools include YNAB, a budgeting app that lets you track your budget and helps you manage your loans, ($ 14.99 / month) and PocketGuard, which also lets you track your budget and to help you plan for debt repayment ($ 7.99 / month). ).
2nd step: Consider a personal loan, if that makes sense
Interest makes debt even more expensive, so if you can lower your interest rates, this is something to consider. A personal loan could help you pay off your higher interest rate debt, as personal loan rates can start at 5%, a number that is more manageable than most credit cards. That said, Lockert recommends proceeding with caution.
âI think it can be a slippery slope to use another loan to pay off another loan. If a borrower knows the root cause of the debt and has resolved those issues, taking out a personal loan at a lower interest rate can help, âshe said. “But it’s important to have a plan and know exactly how much you’re actually saving and be aware of the interest rate and any potential costs or inconveniences.”
Step 3: Get in the right frame of mind
Lockert recommends that before looking at your numbers, it is important to prepare yourself emotionally in advance. Be prepared to see the worst and know that whatever potential mistakes you have made, you are now making a plan to get out of it. âDepending on the type of debt, it can bring up past financial mistakes, shame, guilt and more,â she says. But now is the time to put that behind you and make 2022 the year when you get to tackle your debt as quickly as possible.
Step 4: Ask a friend or spouse to help you on your debt journey
Do you have a friend who supports you financially? âIf necessary, ask a trusted friend while you look at your accounts and write down what you owe,â she said. And if this friend can be a support network for getting out of debt, even better. A to study from Ohio State University has indicated that asking someone you admire for help may have better results than saving with a friend who’s in exactly the same boat or struggling even harder than you.
âNo one learns that stuff and it’s a secret in much of everyday life,â Lockert says. “Knowing that you are not alone can help you move forward and take action, but it is the isolation that can keep us stuck.”
Step 5: Reward yourself for making it happen
Instead of just going through the debt repayment process, Lockert recommends committing for a fun, energizing reason you want to do it. Create milestones and mini-rewards or choose a new side job to learn something new with a goal of where the money goes.
“When I was paying off my debts, I created a ‘debt free dream list’ and put on the list going back to Los Angeles, having cats and taking my mom to Italy,” she declared. âWhen I was paying off my debts, I was motivated by these dreams. “
Step 6: Setbacks Happen, Go Forward
It’s a marathon to pay off the debt, and some miles will be better than others. âYou may have seasons where you are more into paying down your debt than others,â she said. “It’s okay! The key is to stay the course.