Worthwhile Financial Goals: Paying Off Debt


A quick guide to paying off debt.It’s no surprise to anyone that debt isn’t fun to deal with. While debt may have seemed like a good idea when you needed a car or wanted to avoid paying interest for 18 months, owing someone each month gets old quickly.

That’s why you should make one of your top resolutions this year to pay off your debt. Even if you just knock out half of your debts, you will be able to breathe a little easier this year.

Here are some easy baby steps to take when paying off debt.

Write Out All Your Debt

Writing down all of your debts can be painful, but it’s essential information to have. List them from order of smallest to greatest. If you have a mortgage, you can leave that off your debt list for now.

Next, add up all of your debts and then divide the number by twelve. Is it doable to pay all of them off within a year? If the total is less than $700 a month, then the answer is yes, but obviously with a lot of hard work.

If your debt total comes out to more than $1,000 a month to pay off, then your goal should be to pay off at least half of your debt in 2015.

Write Out Quick Changes You Can Make

Now that you have the blaring truth of your debt written on a piece of paper (or on the computer), it’s time to start brainstorming quick actions you can take to conquer your debt.

Perhaps you just bought several new clothes on one of your credit cards; that’s great news because you can quickly take them back. Don’t make the excuse that you need them! What you really need is to pay off your debt.

To tackle debt, you are going to have to be a little hard on yourself and realize what you really need in life, and a new pair of slacks that cost over $50 is not a need.

Some other quick changes you can make are calling in for a rate adjustment on each card. Explain that you are having trouble paying the minimum payment, and ask if there is anything they can do to lower the interest rate. Many companies are willing to budge a little if it means that you’ll keep paying your bill.

If you can refinance an auto loan to a lower interest rate, then that will also drop your payment amount drastically. If you have great credit, there is no reason why you can’t refinance your car loan to under 2%.

Pay Off the Smallest Debt First

There have been many debates about which method of paying off debt is better – paying off the smaller loan first, or paying the higher interest rate loan off first.

We know that losing five pounds the first week of a new diet would motivate us much more than losing ten pounds in two months. The same principle applies to debt repayment. Paying off just one debt will make you feel like a debt conqueror.

Pay the minimum on the rest of your debt while throwing the most money at your smallest debt. Once that debt is paid off, move on to the next smallest. This will get your debt repayment momentum going and keep it going for several months down the road.

Make Sacrifices Wherever Possible

In each financial goal post I write, I will probably mention the baby step of making sacrifices. This is because I know making temporary sacrifices this year will benefit you for many more years to come once you reach your goal.

Take a look at your budget. What can you cut out, even just for two months? Cutting out fast food spending for two months or carpooling for one month can save you an extra $100-200 a month that can then be thrown towards debt.

You don’t have to make these changes forever, just for a few weeks to give yourself a little more money to pay off your debt.

 

Paying off debt in 2015 is a great goal to have. If you feel as though your paycheck is spent before you even deposit it, then that’s a huge sign you have too much debt or are living outside of your means. Give your bank account some breathing room this year!

Are you working on paying off debt this year? What’s your plan of attack?