With a new year beginning some people are ready and energized to get their finances in order. However debts from the past (some of them very recently acquired) are weighing them down. If you’re ready to get rid of debt, here are some tips to jump start your year.
The Plan to Pay Off Debt ASAP
Through the years, I’ve found while there are several ways you can tackle this beast, there are some principles that work across the board for most people. Paying off your debt faster usually includes:
- Know How Deep Your Debt Is
- Choose the Method that is Easiest For You to Keep
- Find Extra Money in Your Budget
- Make Your Payments Automatic
Know How Deep Your Debt Is
Before you can start, you should have a concrete number to attack. Instead of pulling out all of your receipts or bills, save yourself serious time by using online tools like Mint to grab that data quickly and easily.
In addition to your debt amount, you can also get a full snapshot of your budget which can be a huge help to boost your net worth in 2015.
Choose the Debt Pay Off Method that is Easiest to Keep
Don’t get hung up on finding the most optimized plan, instead you want to look for a plan that you are more likely to stick with until the debt is paid off. One method that has been extremely helpful for many people is the debt snowball.
Dave Ramsey, author of The Total Money Makeover, has encouraged families and individuals to use it and every week, his listeners call in to declare that they are debt free. In case you’re not familiar with it, here’s how the debt snowball works:
- List all of your non mortgage debts from the smallest balance to largest
- Pay the minimum payment on every debt
- Figure out how much extra you can put towards paying off your debt
- Use that money to pay down the one with the smallest balance
- When that is paid off, roll over that money into the next debt (old amount +minimum)
- Repeat and keeping rolling over payments until all your debts are gone
Find Extra Money in Your Budget
If you want to knock this debt out, you’re going to need some extra money, but who has cash lying around?
For most people finding money to pay down their debt comes from cutting back on their expenses or finding a temporary source of income. I’ve interviewed several couples on how they got rid of massive amounts of debt and each family had their own preference so if you want to start off with one or the other, just do it.
We found money by negotiating better rates for cable, finding deals on our cell phone, and comparing our insurance. We also developed a side income using skills I had that eventually led to me becoming self-employed.
Make Your Payments Automatic
My final piece of advice is to go ahead and automate your payments so you don’t have to worry about getting it done. Most banks and credit unions offer this as a free service. If yours doesn’t you may want to make a switch.
Thoughts on Getting Rid of Debt
I hope 2014 was a good year for you and 2015 is shaping up to be a fantastic year. I’d love to hear from you about how you’re planning of getting rid of your debt. How quickly do you think you’ll have it paid off?