Keeping New Year’s resolutions is often a challenge. In fact, some of us joke ruefully about how quickly we’ll stop getting up for that 6 a.m. workout, or how soon we’ll ditch the patch in favor of a fresh pack of Marlboros.
Of all resolutions, gaining financial ground is one of the most commonly broken, especially if debt is nipping at your heels.
Make 2019 the year you keep that get-out-of-debt resolution. Following these three simple steps will get you out of debt, and onto solid financial footing.
1. List what you owe
Sit down and make yourself a list of every outstanding balance, including:
- Student loans
- Credit card balances
- Auto loans
- Any other place you owe money
Also, list every balance and, if applicable, every interest rate.
2. Decide which debt to slay first — and focus on it
Some experts recommend going after the debt with the lowest balance first, because it’s easiest to kill. The act of quickly paying off one entire balance can provide helpful motivation to pay off additional debts.
Personally, I’d aim for the debt with the highest interest rate. “Here Is the Best Way to Tackle Your Credit Card Debt” explains how the two approaches work, and why focusing on the debt with the highest interest rate is the most cost-effective approach.
In some cases, the circumstances surrounding the debt will determine which obligation you should tackle first. For instance, if you’ve borrowed against your retirement plan and feel your job is at risk, pay that debt down first. If you lose your job, you’ll have to repay the debt relatively quickly or risk having it termed a “withdrawal,” which comes with a big fat tax bill.
Also, even if your student loan rates are higher than your credit card rates, pay down the cards first. Doing so frees up credit for future emergencies such as car repair or medical treatment. By contrast, money paid toward an educational loan does not free up credit.
Once you have determined which debt to target first, do so with laser focus. After you’ve met your basic expenses for the month, make the minimum payments on other obligations and throw as much cash as possible at the targeted debt.
You’ll want to pare expenses way down. Every dollar you don’t spend needlessly is a dollar that will help clear your financial decks.
Not sure how to cut costs? Start by tracking them. A free service like You Need a Budget will tell you where your dollars are going. Such knowledge can be a real eye-opener.
3. ‘Snowball’ your remaining debts
Once you’ve paid off a debt, you can “snowball” it — that is, direct all the money you had been paying each month on that debt to the next obligation on your hit list. Again, make minimum payments on all the other debts while you focus on paying off that next debt quickly.
Don’t just kill these debts, though. Write their obituaries. suggests posting reminders of paid-off debts where you’ll see them — such as the bathroom mirror or on the fridge.
Highlighting the zero balance with yellow or pink marker drives home the point: “I have paid down X dollars — look how much closer I am to my goal!”
“That gives you momentum,” says Foss, founder and president of Empyrion Wealth Management in Roseville, California.
Foss also suggests that holders of rewards credit cards apply those reward points toward their balances, instead of trading them in for gift cards or airline tickets.
Keep your eyes on the prize
Momentum matters, but don’t be surprised if your anti-debt resolve wavers a little now and then.
Think about the last diet or exercise regimen you tried. At first you felt confident, strong and happy to be taking charge of your health. After a while, though, you really wanted to sleep in or to go out for burgers and fries.
That’s natural. It’s also fatal to any kind of progress. If you want this to be the year you take charge of your money, remember two things:
- You didn’t get into debt overnight.
- It takes time to whittle it down.
Try not to wallow in regret. Wishing you hadn’t spent all that money doesn’t do much good. Instead, focus on the progress you make. Snowball those debts. Write their obits. And stay away from the Marlboros.
Here’s more inspiration:
- “8 Guaranteed Ways to Get Rid of Debt Fast“
- “How I Wiped Out $37,000 of Debt in One Year“
- “How to Pay Off $10,000 in Debt Without Breaking a Sweat“
Share your financial goals and resolutions by posting a comment below or on our .
Marilyn Lewis contributed to this post.
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