5 Tips for Getting Out of Debt in the New Year

Is your New Year's resolution to make better financial decisions and finally dig yourself out of debt? If so, you're not alone as Nielsen reports that 25% of those surveyed list "spending less and saving more" among their top goals for the year. But where do you start? Getting out of debt is by no mean easy but it is definitely doable — the trick is knowing where to start. That's why we've compiled these five tips to get you started on your way to becoming debt free. Make Adjustments to Your Spending Habits It's probably the most obvious step in becoming debt free but it's also the hardest: cutting back on your spending. In addition to changing your lifestyle and habits, perhaps the most difficult thing about reducing your spending is figuring out where to make changes. That's why tallying up your essential bills and creating a budget is the absolute first step to paying off your debt To create your budget, start by combining your net household income and then totaling your expenses including:

• All of your essential bills that cannot be cut (rent, mortgage, utilities, transportation, etc.)
• A list of categories the rest of your spending will fall under (entertainment, clothing, cell phones, etc.)
• Other accounts that require contributions (savings, emergency funds, 401Ks, etc.)

The hard part is figuring out how much of your income each category should take up. Some experts suggest the 50/30/20 method, meaning that you spend no more than 50% of your income on essentials, 30% on other purchases, and 20% on savings. Before you can really get into paying off debt, striving to meet this model will serve as a great jumping off point. So where will the money to pay off debts come from? If you're like many Americans, most likely that 30% category. However, if you find that your essential column is eating up more than it's fair share, it may be time to consider relocating, downsizing items like cars, or taking a hard look at your grocery bill. Your willingness to reconsider what's "essential" to you could go a long way in becoming debt free. Keep Yourself on Track The problem with New Year's resolutions is that they're often out of mind by February. In fact, according to Statistic Brain, only 8% of Americans are successful in accomplishing their resolutions. One of biggest reasons we fail on New Year's goals is that we don't set specific milestones or monitor our progress making it easier to slip. Without accountability many of us will fall short and become discouraged, often making "get out of debt" a resolution for the next year (A.K.A. "never"). Instead of just saying that this year will be the year you get out of debt, set target goals for yourself and write down how you will achieve those goals. This is where having that written, detailed budget will come into play. Once your budget is in place you can make realistic estimates as to how much of your debt you'll be able to pay down each month. This will also allow you to plan the order you will tackle each of your debts (more on that in a minute). Your resolution should also include performing monthly finance reviews that will give you the opportunity to see the progress your making. In the event that you're not doing as well as you thought, the bright side is that you know about it early so that don't get too behind (or discouraged). Additionally knowing where you fell behind allows you to make the necessary adjustments you need to get back on track. Prioritize Your Debts Perhaps one of the most painful parts of being in debt is actually looking at how much you owe. However it's important to know exactly how much you owe and to whom you owe it. This will allow you to tackle the debts that are costing you the most first. For example credit cards will most likely have a higher interest rate than a student loan and so it'd be in your best interest to wipe those out first. One way to help facilitate this is by using what's known as the Snowball Method. When you download this spreadsheet calculator you can enter all of your debts, minimum payments, and interest rates into the sheet as well as how much money you've budgeted to put towards your debt each month. From there it will give you a payment schedule that will not only meet the necessary minimums but tell you which account you should pay "extra" on that month. This method makes it easy to keep track of your progress and help keep you motivated since you'll be able to celebrate as your accounts are one by one paid in full. Negotiate on What You Owe Did you know that it is sometimes possible to negotiate your debt? In some cases a creditor will be willing to work with you and forgive a portion of your interest debt if they can get the principle (and then some) paid back quickly. This often means you'll need to be able to fork over the negotiated amount in six payments or less — perhaps even in one lump sum. While this may be a ton of cash to shell out at once, it could very well save you thousands of dollars compared to normal monthly payment schedules. Be advised that creditors are under no obligation to lower your debt amount and it's possible they won't budge. It's also important to remain calm and not get overly aggressive when trying to negotiate — fighting won't get you anywhere. Most importantly if you do successfully settle your debt, always get it in writing for proof! The worst thing that can happen is you thinking you've paid off an account only to find it the remaining balance went into collections. Consider Consolidating Your Debt with a Personal Loan Finally one of the most popular ways for conquering debt is to consolidate using a personal loan. Today there are more options for obtaining personal loans than ever before. In addition to traditional banks, online lenders such as Lending Club allow individuals to borrow up to $35,000 at rates that are often lower than those of credit cards. In addition to saving you money on interest, consolidating will also allow you pay off your debt with monthly payments and, once again, allow you to monitor your progress. As a result your finances will be far more predictable and your budget will be easier to manage. Additionally consolidation can help improve your FICO credit score. In fact over two-third of Lending Club's personal loan customers report seeing their scores increase an average of 21 points. Conclusion Could this be the year you finally get out of debt? Although it seems like a tall order, taking it step by step and coming up with a plan of attack will greatly assist you in achieving your goal. This year fulfill your resolution and pay off your debt once and for all. Good luck!

This blog post 5 Tips for Getting Out of Debt in the New Year was first published on www.dyernews.com