The past few years have been tough on your finances. Between the unprecedented pandemic, inflation, and interest rate hikes, you can’t catch a break.
With everyday essentials costing more these days, staying on top of your regular bills can be a challenging. And as for unexpected expenses that rear their nasty heads? It’s next to impossible to handle them without taking out a loan.
Maybe you dipped into a line of credit when you cracked a tooth on some holiday sponge toffee. Or perhaps you relied on an installment loan to pay for a new tire after the old one burst.
During rough financial times, it’s normal to need some financial backup in the form of a line of credit or installment loan. But with all that borrowing, you might have more debt than you want.
By making debt the target of your New Year’s resolution, you can pay down your bills and free up your cash again. Check out these debt-killing tips to help you make your goals a reality in 2024.
Know Your Debts
Understanding what you owe is the first step to mounting an effective debt-paying strategy. Go through your accounts and note down the following info for each one:
- The outstanding balance
- The next minimum payment
- The payment frequency/schedule
This accounting can help you get a clear picture of your debts. More importantly, you’ll be less likely to lose track or forget about a payment after doing this task.
Prioritize Minimum Payments
The minimum payment on debt represents the least amount of money you have to spend to avoid late fines.
- If you have installment loans, the minimum is the fixed, predetermined payment taken out of your account according to schedule.
- The minimum works differently for revolving credit accounts, like a line of credit or credit card. It may be a flat fee, totalling a fraction of your outstanding balance. It can be a percentage of your balance. Or, the minimum might be a payment towards your interest and your principal.
No matter what, you should always hit the minimums.
Spend Less to Go Beyond the Minimum
The minimum payment is just that — the bare minimum you have to do to avoid penalties. But if you really want to pay down debt fast, you’re going to have to go above and beyond these minimums.
To do that, you’re going to have to find money in your budget. Take some time to evaluate your spending. Be critical of anything that isn’t an essential bill or purchase. Unnecessary spending is easiest to pause, at least until you get your debt under control.
Most people can reduce how many subscriptions they have or how often they get takeout. Take a look at this list for more ideas on what you can cut.
Choose a Snowball or an Avalanche
Don’t just spread this extra cash between your debts equally. Research shows it’s more effective if you target specific accounts. The snowball and avalanche debt payment methods help you identify which one you want to target first.
- Avalanche: Increase your payments for the account with the highest interest rate. This method promises to reduce how much interest you pay overall, but it can be challenging to stick to.
- Snowball: Pour your extra cash into the account with the smallest balance. This option delivers the quickest win, which can motivate you to stick with your New Year’s resolution. The only downside is that you will pay more in interest this way.
Celebrate the Wins in the New Year!
Paying down debt isn’t easy, so be kind to yourself. You’re doing a lot to get your finances back under control, and you should acknowledge your hard work. Celebrate the milestone along the way and good luck!