Q: Each year, I resolve to tackle my credit card debt and I never seem to get anywhere. What can I do to start the new year off right?
A: While it might only have taken a short time for your debt to add up, it will take much longer to pay off. Here's what you can do:
- Start by listing how much you owe and how much interest you are paying.
- Then prioritize your obligations: Housing and vehicle payments are typically at the top of the list.
- Next, track what you currently spend. For at least one month, jot down everything on which you spend money. Before you can make any changes, you need to identify what you can change.
- Then ask yourself some tough questions:
- Where can I trim expenses? (here are some ideas)
- Should I suspend regular investment contributions while I'm paying down debt?
- If I consolidate my debt with a new loan, would the interest rate be lower?
- Can I increase my income at all? (here are some different ideas to get your creative juices going)
- Do I need assistance to consider my options objectively and develop a workable plan?
- Now create a realistic monthly spending plan in which expenses don't exceed your income (this worksheet can even guide you through the process and provide you with tips as you go).
If possible, your plan needs to account for debt payments that are higher than any minimums you might be paying now.
Include savings for unanticipated expenses in your plan. While it may seem odd to save money while you're trying to pay down debt, you need savings to pay for what you used to charge on your cards.
The savings will let you put your credit cards away and use cash or debit. This will help you stay within your budget and pay off the debt.
It Takes Work, But It's Worth It
You may need to put long-term goals on hold while you fine tune your money management skills.
On the plus side, paying down costly credit card debt can save you thousands of dollars of interest charges each year and will free up funds to help you reach your goals once you are debt free.
- 7 Ways to Save Thousands of Dollars on Expenses
- 10 Tips for Paying Off Credit Card Debts
- The Fastest and Most Effective Ways of Getting Out of Debt
- The 7 Smartest Things You Can Do for Your Finances