Make this the year you tackle those lingering debts. Shedding the restriction and stress that debt evokes is well worth the effort. It may seem overwhelming, but you can break it down into manageable pieces.
1. Write down how much you owe.
Get a paper and pencil or spreadsheet together that simply lists out exactly how much you owe to each creditor and what your monthly payments are. This may take an entire month if you rely on bills showing up in your mailbox to tell you where to send your money, but it will be the most important step you’ll take. Knowing where you’re starting from gives you the leverage you’ll need to lunge forward.
2. Write down your monthly income.
This is a critical step to discovering if you have enough to stay afloat each month. If you discover that you’re sinking further in debt by paying out more than you bring in each month, don’t dispare. You can start shaving unnecessary expenses and generating extra income to try and close the gap.
3. Pick a debt to kill.
There are two schools of thought on how to select which order to pay down your debts. The first is to pay down the debt with the highest interest rate first. The second (and most psychologically motivating) option is to pay down the debt with the smallest balance first. Choosing the first option ensures you’ll pay less interest, but the second option helps you to maintain motivation by providing the thrill of eliminating some of your debts quickly. Choose whichever option feels right to you. You can always switch methods after you get started!
What would you do with your money if you weren’t sending so much of it to creditors each month? Would you save more for retirement, change careers, cut back the number of hours spent working or travel more?
Start today. It’s not as daunting as it seems, I promise. This time next year you’ll be so glad you got started now!