Be Debt-Free This Year

by Shaunna Privratsky

No matter why you are in debt, these tips can help with paying that debt off. With some dedicated dollar stretching and these smart money moves, you can dive into a debt-elimination diet and become debt-free this year.

A new day is dawning in the United States of America. People are waking up and realizing they are drowning in debt. And many people don’t know where to turn.

Now is the perfect time for paying off debt. Try these steps to whip your wallet into shape.

1. Take stock of your debt.

First of all, take stock. Some people may be shocked to learn exactly how deep they are in debt. It is essential to know where you stand, so you can start fixing it.

Gather all your credit card bills, loan statements, car loans and mortgage papers. List all the amounts, starting with the lowest balances.

2. Stop charging.

The plan is pretty simple. Stop charging on your cards.

If you feel you can’t make it without cards, you will have to create a workable budget. Adjust your spending so that your income is a little more than your expenses.

This could be a drastic change, like going on a crash diet, but with discipline, your pain will equal financial gain when you get your spending appetite under control.

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3. Pay off one debt.

Now create a goal to pay off one card first.

You must find extra money to add to the minimum monthly payment, as much as possible, to get that card completely paid off.

Continue making your regular minimum payments to your other cards, car loan, mortgage and household bills. Paying bills on time is the quickest way to boost your credit score. It sends a strong signal to your lenders that you are serious about your debt-elimination goals.

Congratulations! After months of scrimping, you have paid off the first card. Celebrate your accomplishment, but not by going on a spending spree. Look for inexpensive ways to treat yourself.

4. Start working on your next debt.

Now take that payment and add it to the next card in line. Continue chipping away at the larger amounts. You are well on your way to being debt free.

5. Explore why you have fallen into debt.

Before you get complacent, let’s explore the many reasons people fall into debt. Some may be their fault, and some may just be circumstances. See if your debt problems stem from any of these common causes, so that you don’t fall into the debt trap again.

Divorce

Divorce is one of the costliest decisions to befall a couple or family. Suddenly you are no longer sharing expenses or income, but living separately, with additional costs for housing, transportation and food.

From a purely financial standpoint, divorce is devastating and recovery can take years. (See Ways to Reduce the Financial and Emotional Costs of Divorce.)

Conversely, money issues are the leading cause of divorce. If at all possible, try to work together to solve money problems before they take the ultimate toll on your family. (See How Not to Fight About Money.)

Reduced income

Job loss or reduced hours is another major cause of debt. With the same bills, but no money or less coming in, it is all too tempting to reach for the credit cards.

It is crucial to get your income and expenses back in line as soon as possible. Either increase your income, perhaps with a second or better paying job, or reduce your spending. Tackle it from two fronts and do both.

Medical expenses

Medical expenses are skyrocketing, while insurance rates are becoming out of reach for many Americans. A sudden illness or a life threatening diagnosis can wipe out even the most financially savvy.

Keeping on top of your health with preventive visits, carrying insurance, and working with your doctors are the healthiest money moves you can make.

If you already have huge medical bills, work with the billing department to reduce or settle them for a lesser amount. They will set up a payment plan that will fit your budget. (See 6 Ways to Reduce Medical Expenses and Reducing the Cost of an Emergency Room Visit.)

Gambling

It may have started with a fun night out with your friends. You put a little money down and won a modest amount.

It seems easy to make lots of money by gambling. Yet if you spend more than you can afford to lose, gambling always leads to debt and can become an addiction. If you can’t stop, seek counseling to control your habit.

You need some money smarts.

Maybe you’re just not good with money. Your parents might not have talked about money, you may not have learned anything in school about it, and now that you are in debt, it is a shameful subject. You can educate yourself through countless money advice sites on the internet.

6. Start an emergency fund.

Do you have a rainy day fund? Are you counting on your credit cards in an emergency?

Your current debt may stem from “emergencies” like an unexpected trip to the car repair shop or a huge heat bill. If you have a cushion of cash for those emergencies, you will not have to reach for your cards.

Start a fund now. As the balance grows, so will your peace of mind.

7. Stop waiting for an easy fix.

Stop wishing for a gigantic tax refund or for the government to send out another stimulus check. That promotion you were promised might not take place. You may just be lucky to keep your job.

Don’t bank on future money until you have it and don’t wait until you have extra money to address your debt problem.

No matter what caused you to fall into debt, these tips can help with paying off debt.

With some dedicated dollar stretching and smart money moves, you can dive into a debt-elimination diet and become debt-free this year.

About the Author

Shaunna Privratsky became an expert in personal finance out of necessity. Between writing, reading and gardening, she is always on the lookout for bargains. Visit her at The Discount Diva.