How to Actually Keep Your New Year’s Debt Resolution

How to Actually Keep Your New Year’s Debt Resolution

Some might say that New Year’s resolutions were made to be broken. However, looking at becoming more financially sound is never a bad idea. If you are considering a New Year’s debt resolution for 2019 there are a number of things you can do to not only stick to your plan but also maintain healthy spending habits for life. Here’s what we recommend you do to pay down debt and become a smarter money manager in 2019.

Reality Check

Managing debt starts with a clear understanding of all of your outstanding debt. This should include all debt from credit cards, phone and utility bills, to outstanding taxes. By knowing what you owe you can get a realistic look at what your monthly payments should look like for your debt resolution plan.

Assess Your Budget

Take inventory of your monthly income and all of your monthly bills. Don’t forget the automatic payments you set up for things such as magazine subscriptions or Netflix, as everything adds up. Deduct your entire monthly obligations from your income to see where you land: Extra cash, breaking even, or in the hole. Then do the following:

  1. Got extra cash

    If you have extra cash, consider how much of that cash you can put toward your debt. A good formula to use is to put 50 percent towards your necessities, 30 percent towards wants, and 20 percent towards debt. That 20 percent than becomes savings once your debt is paid off. However, if your debt has high interest rates you may want to forego wants and give everything possible to the debt to reduce the interest you will pay overall.

  2. Breaking even

    Although this is not ideal it is better than being in the hole. Breaking even will not allow you to work on that debt, so this is the time to take a look at your expenses and see where you can do some slashing. A good place to start is your entertainment budget for things such as movies and dinners out. Other good places to save can include making your own lunch, avoiding take-out food whenever possible, and maybe even cutting out that morning and afternoon $6 latte. Also don’t be afraid to renegotiate cell phone or cable plans and remove non essential items such as call-waiting or unneeded channels.

  3. In the hole

    If you are in the hole, you will have to start slashing, but in a far more aggressive manner. Look at putting a stop to all non-essential spending so you can stop adding to your debt and instead start trying to pay it down. Also, stop using your credit cards and use cash or debit instead. If you are still unable to manage your debt it’s time to speak to a credit counsellor or Licensed Insolvency Trustee about your options for cleaning up the debt.

Assign the Cash

Now that you know how much you owe and how much extra money you can put towards that debt, you can start allocating cash to help reduce your debt payment each month. Look at how much you are currently paying on each balance monthly. If you are only paying the minimum amounts, consider taking the extra cash you have and adding it to the minimum payment for the lowest balance you owe or to the balance with the highest interest rate. You will pay that balance down more quickly and once it is paid, you can choose the next lowest balance to start upping the monthly payments. Also pay attention to the dates provided on statements what show, at the minimum payment, how many years it will take to pay the balance. This can be a reality check and good indication if you need help from a trustee to resolve your debt issues.

If you are able to pay off one account remember you will not only have the extra money you used to pay off the first credit card but the minimum payments you were paying on that card as well. Apply all that money to the minimum balance of your next credit card until it is paid off and continue doing this until all your balances are zero.

Debt Consolidation

Another option for paying off debt more quickly is debt consolidation. Debt consolidation consolidates all of your outstanding debt into one loan or in the case of a Licensed Insolvency Trustee; a proposal. If you do a consolidation loan or a proposal not only do have one easy payment, but you will also be paying less towards interest and more towards the principle, which means your debt will be paid down more quickly. Of course, for the loan, this only works if you have good credit and the balance is not so high that a lender would not be willing to provide the loan.

Manage Future Spending

The key to debt is not getting into debt in the first place. To do this effectively, never use credit cards for charges you can’t pay off when your statement arrives. You can have good debt, which is a balance you pay off in full each month. This is important as it helps keep your credit score looking good. You want this in case you apply for a larger loan for a mortgage, vehicle or even to start a business.

Pay Cash

Another good budget idea is to pay cash. Not using your debit card, but actual cash. This works well because you set yourself a daily or weekly budget, take that money out of the bank, and when that cash is gone, no more spending. This ips perfect for managing expenses that often go unnoticed when you use debit or credit. This can be those morning lattes, cocktails after work, or everyday items from your lunches to magazines. You’ll definitely notice when there’s no more money in your pocket or wallet which forces you to stop spending.

Get Counselling

If all these ideas seem well and good but just don’t seem to work, you can consider speaking to a credit counsellor. They can look at your current debt and come up with ways to help you manage your debt more effectively. It is always best to speak to a counsellor before your debt becomes unmanageable. This will help you make tough decisions about how best to clear the debt efficiencially and within your means.

Anyone who has paid off a major debt will tell you that staying the course is worth it. Having a plan and sticking to it will allow you to live a debt-free life and begin focusing on saving for the future.

For more information about getting out of debt, call Kevin Thatcher at 1-888-329-5198 or contact us here.

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