If you resolved to reduce debt, trim your budget and save some money in 2016, putting as much money as possible toward existing credit card bills before spending on new items is a good way to flex your financial muscle. While it may not be possible to eliminate all your debt in one year, you can take a first step by reducing debt one step at a time each month. Here are a few tips to get you started:
- Be realistic. Start by creating a budget based on your actual take home pay. Start a ledger sheet to track your monthly (and quarterly) expenses, such as rent or mortgage, phone, utilities, insurance costs, college loans, car loans, gas and food. Study your budget and notice which costs vary. Then, decide which expenses you can control by making better spending choices. Formalize your budget based on your actual take home pay. Next, prioritize your spending so you will first pay bills that matter most. If you need help to set priorities, speak with your accountant, a financial planner or other trusted adviser.
- Don’t dig into savings or home equity to pay for luxuries that cost more than you have available in your monthly budget. When learning to manage debt, don’t buy things you don’t absolutely need. If you can’t afford something, put that purchase on hold.
- Start saving! Some financial advisers recommend that you set aside enough money to cover six months’ worth of expenses. If that feels like an overwhelming task to you, then chunk your savings plan down into manageable bites. Resolve first to save enough to cover one month’s worth of expenses. When you reach that goal, congratulate yourself with a pat on the back or do a happy dance. Celebrate your savings by resting easier at night! Then keep going until you’ve saved another month’s worth of money. Setting aside even a small amount from each paycheck will help you get in the habit of saving money so you can protect yourself in the event of job loss, illness or other unexpected event.
- If you are managing within your budget and you have enough money saved, consider doubling up on mortgage payments or putting more money toward principal when you can. Check first to make sure you won’t incur prepayment penalties as a result. In the end, you may be able to pay off your mortgage more quickly.
- Check with your banker (or other mortgage lenders) to determine whether you qualify for a more favorable rate and a lower monthly payment. Also, beware of extending the term on your loan. The longer your term, the more money you will pay in interest over time.
Need a referral to someone who can help with your financial plan? Ask a trusted friend or business colleague, contact your local Chamber of Commerce, call the State Financial Planning Association or contact Daley Law for more information.