Are you looking to put in motion a plan to get your debt under control for the upcoming 2016 calendar year?
If your debt has recently risen over the course of the past year and you want to get your finances in order as soon as possible – here are 7 steps to take to reduce your debt as early as the 1st of January.
Step #1: Paying off Your Largest or Most Expensive Debts First
Perhaps one of the most effective methods of reducing your debts at a faster rate is to start with the largest one. Sometimes this is the largest amount and other times this may be the loan with the highest interest. Although often times the largest debts you have are the ones with the higher rates and therefore a good place to begin.
In order to focus most of your attention on this debt, it may be necessary that you continue paying off only the the minimum balance on your other loans – for the time being at least. If you have a series of debts, that are ranked from largest to smallest, you can continue down the line following this debt-relief method until you reduce as much of your debt as possible.
Since you have a goal of aiming to reduce your debt by January first, then targeting the first largest debt and the moving onto the next step may also be a realistic method for you to pursue.
Step #2: Paying More than Just the Minimum
Once you have begun paying off your largest debt first, then a next step can be to start paying off more off all your other debts. This can be done by paying a bit more than just the minimum balance. Even if you up the monthly payment by $50 or $60, this can be more effective than just continuing to pay the minimum each time. By doing so, you can speed up the process and get that overall debt load down even more as we enter into the new year.
Step #3: Spend Less on Items you Consider ‘Needs’
Another strategy that can help you reduce your overall debt is to begin to spend less money than you are planning to spend. If you already have an annual or even a monthly budget – you can start by spending even less than what you have previously been doing. By doing so, you can use this income instead to pay off your debts – not to mention you won’t also be contributing to a higher debt load.
Some areas where you can begin to pay less can include your groceries and other household necessities. While of course these are called necessities for a reason – because you still do need them – however there are still ways to continue to purchase these items for less. For example, you can look to shop for food and household items while they are on sale – stocking up on these items and as a result not having to go out as often to buy them during non-sale time frames. Approaching your essential shopping in this manner can allow you to save even up to 25% on your annual bill and help you lower your debts by January – as well as well into the future.
Step #4: Identifying Areas to Cut Back on From Your ‘Wants’ Category
If it is your intention to find various areas of your expenses where you can cut back on – but perhaps those that fall more so into the ‘wants’ category, then this can help you to lower you ongoing accumulation of debt as well.
It is first best to become aware of how you are spending your money – i.e. how much, on what, and where. Once you have done so, you can truly understand just how much you are spending on items that you may be able to do without. With this awareness comes your ability to identify which expenses you can cut back on – or cut out altogether.
Some common areas and items where we often spend a lot on can include, cable, internet, mobile devices, clothing, electronics, entertainment, etc. Sometimes, we can reduce these areas and save quite a lot of income that can then go towards paying down debts as well as preventing more debt from growing.
Step #5: Looking for Another Source of Income
An additional method of lowering your debts as soon as possible is to look for another form of employment. If you are already working a full-time job, you may feel that any further work may mean too much on your plate. However, these days there is a large market for online/work from home opportunities as the nature of employment continues to evolve. With that being said, you may just find that you can manage adding another job to your resume, without having it disrupt your current schedule.
Having even a little bit extra income for the next few weeks can really help you as you pay down your debt levels. The money you make from this second job could all be designated towards your debts and therefore, your other sources of income can be used for your other expenses.
Step #6: Creating a New Spending Plan – aka Budget
When you think about it, a budget and a spending plan are really one and the same and can help you stay on track with your debt payments as well as making sure you are not spending beyond your means. While the word budget can be a somewhat daunting word, if you think of it more in this manner it can be a more friendly sounding term and in turn perhaps be more obtainable as well.
By setting a budget that is both realistic and appropriate for your specific situation, this will is more likely that you will encounter a more successful outcome. By looking at how much you are earning and the size of your payments and your debt, you can then move forward from there. Again, even if you already have a budget put in place, you will want to rethink your current plan and revise it accordingly to meet your current circumstances. This can then help you achieve your personalized debt-relief plan with more ease and efficiency.
Step #7: Consider Getting a Consolidation Loan
Lastly, in order to reduce your debt even more efficiently by January, you may also want to consider applying for a consolidation loan. While there are various methods of doing so, the idea is to combine your current loans into one loan with a reduced interest rate and this can then enable you to pay down your debts at a faster pace. In addition, by only having to make one monthly payment instead of multiple ones – not only does this simplify your payment schedule it can also help you to free up some additional income that can be reallocated to wards other debts.
All in all, if you can work through these steps, while identifying which ones, and in which order may make the most sense for you – you have a real opportunity to pay off some of your debts prior to the start of the new year. In fact, as you gain momentum and become more motivated to continue lowering that debt, come January 1st you should be prepared to see your debt decline, thereby setting you down the path to more stable finances all throughout 2016.
