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Are you stepping into the new year with lots of debt? Don’t worry. You are not alone. Many people are struggling to repay outstanding debts.
However, you can make a difference by starting to solve your debt problems at the onset of the new year.
Check this article to know how to solve your debt problems in the coming year.
1. Set a resolution to solve your debt problems
Most of us set resolutions at new year. This year, set a resolution to solve your debt problems. Think about what habits are leading you to incur debt that you can’t manage. Now, set a resolution to overcome those habits to avoid incurring more debt, and paying back the existing ones.
Related: 7 Smart Ways To Set And Achieve Your Goals
2. Plan a suitable budget to manage your income
Budget! Nearly every one of us knows about a budget, but very few plan one. Many people think it as a waste of time and others fear that they won’t be able to plan a suitable budget.
It is true that you can’t plan a realistic budget in the first month. Trial and error will make it perfect.
So, list your income and expenses, and make a budget. If you’re happy with the amount you’re able to save, start following it.
Make a note where you’re facing problems. It will help you modify your budget in the next month.
Doing so, you’ll be able to plan a realistic budget.
But, your work is not over even if you plan a suitable budget. Revisit your budget at least once every quarter and make modifications if required.
Related: The Quick and Easy Way To Start A Budget
3. Set smart and realistic goals to achieve by the end of the year
I read this somewhere and I truly believe in this idea. A goal may look quite good on paper but might be a bit unrealistic to achieve. So, practically, it’s of no use.
Instead, set goals that are realistic, which is achievable by the end of 2020. Think hard and set specific goals with a date within which you’ll try to achieve it.
For example, if you have a huge debt to pay off, say about $30,000, and you set a goal of paying it back within the next 12 months, it may not be possible. But, you may set a goal that you’ll pay off half of it off, that is, $15,000. It is highly achievable with a decent income. To achieve this goal, you need to save about $1,250 per month.
So, think and decide an amount you’ll try to save every month. It will help you set a realistic debt repayment goal.
4. Spend less than what you have thought to spend
“You can have almost anything you want, you just can’t afford everything you want.”
If you’re unhappy with this thought, then know that even millionaires can’t afford everything they want.
So, if you want something, give some time before you buy that one item; say, wait about 2-3 days. If you still feel the urge to buy it, then check out whether or not you can buy that item with cash. If not, then don’t buy that big-ticket item. What you can do is save money to buy that item.
If you feel the urge to buy items on credit, make sure you’ll be able to pay the entire outstanding balance within the billing cycle.
In short, you have to stop incurring credit card debt, before you look for suitable get out of debt strategies.
Related: 10 Ways To Start And Survive A No-Spend Month
5. Grab a second income opportunity to increase your earning
If you’re not able to plan a suitable budget, that is, you’re not able to plan one to save a decent amount, then the only way out is to increase your income.
You need to look for other opportunities to earn income (i.e. side hustles. It can be a part-time job or using a hobby you love to do.
For example, if you love teaching, you can give online lessons. If you love to write, you can do freelancing work by writing articles or starting a blog.
You can also use your leisure time to do some part-time jobs. Many retail shops and restaurants advertise for part-time job opportunities during the festive season. Keep an eye for these advertisements.
6. Start an emergency fund
It is absolutely necessary to start an emergency fund even if you’re struggling to pay back debt. Why? An emergency fund can save you during future financial emergency situations. You won’t incur debt at that time.
So, make sure you deposit a certain amount in your emergency fund every month after you get your paycheck.
One of the best things to do is opting for automatic transfers to this account at a fixed date every month.
7. Seek professional help if required
If you feel you can’t control and repay your debts on your own, you can opt for credit counseling. Most of the credit counselors offer advice free of cost.
The consolidation and settlement companies are also not supposed to charge anything before providing you with any service.
However, while choosing a counseling agency or a consolidation and settlement company, make sure you choose a reliable one who has been in the business for at least 3 years. Also, check online reviews to be sure that the company you are choosing has a satisfied clientele.
8. Decide which of the get-out-of-debt strategies will be most suitable
This is the final decision. There are various get out of debt solutions, among which you need to choose one or a combination of to get out of debt. However, you need to have a brief knowledge about these strategies so that you can decide which can fit your financial situation.
Here is a brief idea about the two popular get out of debt strategies, consolidation and settlement.
If you enroll in a consolidation program, all you have to do is pay a monthly amount to the consolidation company, which will disburse it amongst your creditors as per agreement. The interest rates on your debts will also get reduced, thus making it easier for you to repay debts.
But, if you can’t pay your debts in full, then you can opt for a settlement program. Here also, you have to make a single payment to the settlement company, which will negotiate with your creditors to reduce your payoff amounts. Once a sufficient amount gets accumulated in the account established with the settlement company, it will use the funds to pay your creditors, one by one, and you get rid of your debts.
Apart from these, you can also opt for DIY methods.
The balance transfer method is a great DIY option to get out of debt. All you have to do is transfer your existing credit card debts to a new card with the lowest rate of interest and sufficient balance. Then, you can repay the transferred amount at a lower rate, thus making it easier for you to repay debts faster.
Key take-aways
Sometimes, getting out of debt seems to be impossible.
Before picking a specific strategy, you have to promise to work on getting out of debt. I have seen that once I decide to do something, the rest of the job becomes easier and you can overcome hurdles and be successful.
Author’s Bio
Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She started her financial journey a long while back. Through her writings, she has helped people overcome their debt problems and has solved personal finance related queries. She has also written for some other websites/blogs like Camp Fire Finance, XRAYVSN, Diana On A Dime, Peerless Money Mentor, etc. You can check out her blog, Twitter, or contact her at good.nelly11@gmail.com.
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Nicely written. The idea that it is important to recognize that you might not be able to get out of debt in one year is important. Putting debt re-payment in your budget is critical to being successful in achieving your goal.
I completely agree. Thanks for dropping by!