Here are some things you can do to help evaluate, organize and reduce your debt this year:
1. Account for your spending
Track all your expenses against your income using either an Excel spreadsheet or accounting software. Include regular expenses like rent and utilities, food, and cell phone bills, and hold onto receipts for all purchases made online or on the go for tracking.
This will help you see where your money is going on a monthly basis. You’ll be able to see when you’re spending wisely on necessities and occasional treats, and you’ll be more aware of frivolous purchases you’re making on a regular basis (we all do it).
2. Set a budget
Now that you know where your money is going, set realistic limits for yourself that will allow you to either put more money into savings or more money towards paying off your debts. If you see you’re spending extra money on eating out during the workweek, fore example, pack some lunches and put the savings aside to pay off a credit card.
3. Prioritize and consolidate your debts
Once your monthly budget is set, take a look at your outstanding debts and determine which ones will be most beneficial to pay off first. Look at the amount of debt you have and the interest rates associated with them; some people choose to pay off the smallest debts in order to provide a quicker boost to their credit score, while others opt for paying down the principal on debts with higher rates.
Either way, automatic bill payments can be beneficial to assure you’ve made at least the minimum payments by their due dates to avoid penalties and rate hikes. You may also want to speak with a trusted debt counselor, who can advise you on consolidation options.
4. Refinance and renegotiate
If you’re already a homeowner with some equity in your property, using a cash-out refinance to pay off other debts can save you a significant amount of money in the long run. Interest rates on mortgages are often lower than those on student loans, car loans and credit cards, and reducing the number of payments you’re making each month helps to simplify the process and allow you to “feel” the progress being made more immediately.
Because current mortgage rates are so low, you may also consider refinancing your mortgage to lower your monthly home loan payments.
5. Hold yourself accountable
With our recommendations above in place, keep your eyes on the prize. Whether your goal is saving up a down payment for a new home or simply getting back to zero debt, you’ll get there faster if you stick to your plan. Review it regularly and hang in there through the times of temptation to spend and indulge.