Yahoo Movies What Should You Do If You Racked Up a Ton of Debt Last Year?
You’ve gotten a look at the first credit card bills since Christmas, and it isn’t pretty. The unexpected big car repair bill in the summer, combined with your son’s dental emergency in the fall and, yes, the holiday expenses that maybe went a bit overboard, left you with a pile of debt to enter the new year. And the wonder of how you’ll ever dig out of this financial hole.
The debt didn’t create itself in a day, so don’t expect it to go away in a day. Instead, create a debt-reduction strategy – and stick to it.
Read: 10 Ways To Bounce Back From a Heavy Spending Month on Your Credit Card
See: What Not To Do While Trying To Get Out of Debt
Review Your Expenses
Take a good look at your monthly household expenses by charting everything you spend for a month and categorize your expenditures. Remember to include the following:
Housing: rent, mortgage payments, property taxes, insurance and maintenance
Transportation: car payment, insurance, gas, maintenance, travel, annual registration
Groceries
Utilities: electric, gas, water
Medical and life insurance premiums
Medical costs: monthly prescriptions, annual dental and eye exams not covered by insurance
Debt payments: student loans, credit cards, other personal loans
Savings: deposits to savings accounts, retirement funds
Kids’ costs: childcare, school tuition, sports leagues
Personal spending: clothing, personal care (haircuts, gym membership), furniture, gifts
Recreation and entertainment: eating out, vacations, streaming services or cable, hobbies, concert or sports tickets, anything else considered “fun”
Miscellaneous
After categorizing your expenses, figure out what you can eliminate and divert those savings toward paying down your debt. These are hard choices we all need to make, but maybe $60 a month toward the gym, or the $100 a week for “date night,” are things that you can live without for now. Remember you still have that treadmill collecting dust, and there are cheaper “date night” activities, like the free concerts in the park with a picnic dinner.
Budgeting 101: How To Create a Budget You Can Live With
Create a Budget
Once you’ve figured out the expenses you “must” pay every month, create a budget. It’s easier than ever now through budgeting apps that allow you to account for every dollar you spend, as you spend it, since your device is always at your fingertips. You’ll always know how close you are to exceeding your monthly budget in any category and can adjust.
“By listing every source of income and every monthly expense, you can track where improvements can be made. Perhaps you can save on the carryout dinners or perhaps you realize you spend too much in subscription services,” said Zachary A. Bachner, a certified financial planner with Summit Financial Consulting in Sterling Heights, Michigan. “By listing every expense, you can identify those that are too high or those which can be reduced.”
Boost Your Earnings
The list of our monthly “must-have” expenses is long, and your monthly earnings just might not cover those plus a determination to pay off debt.
“Without extra income you can’t cope up with extra debt payments. Working harder or having a better-paying job isn’t the only way to increase your income. If it were, everybody would change careers and earn more money until they no longer need credit cards. However, there may be ways to supplement your income–at least temporarily–until your obligations are paid off,” said Lyle Solomon, a principal attorney and financial expert.
“The most obvious strategy to increase your income is to request a raise from your boss. Set up a meeting to discuss your talents and the excellent work you’ve been doing. If a raise isn’t achievable right away, ask your boss what you can do to improve your hourly rate or income in the future.
“Side hustles can also help you supplement your income, and they don’t have to be second jobs. Babysitting, Uber driving and freelance work can all help you generate some extra cash.”
Keep Reading: 16 Key Signs That You Will Always Be In Debt
Allocate Any Extras to Your Debt
With tax-filing season around the corner, you just might be getting a refund from Uncle Sam. It’s a windfall that isn’t part of your monthly budget that could go a long way toward paying off your debt.
If you really planned on using for a weeklong vacation to a sunny destination with your significant other, remember erasing debt is about hard choices and compromises. Instead of a week in Florida or the Caribbean, how about putting most of the money toward your debt and using the rest toward a family weekend staycation, and splurging on much more affordable treats, like a weekend at the beach or the local ski slopes, depending on where you live.
Prioritize Your Bills
If you’re staring at a stack of bills that need to be paid, pay them off one at a time.
“If you have debt with multiple credit cards, look into how much is owed and how much interest you are paying on each card,” said Adam Deady, a certified financial planner with MassMutual. “Then prioritize the order you pay off your credit card balances by making the minimum payment on each card and then attacking the card with the lowest balance first by paying as much as you can afford, or making the minimum payment on each card and then attacking the card with the highest interest rate.
“To help mitigate debt issues in the future, as you pay off a credit card, consider whether or not you need that card. If you have several different credit cards, you probably don’t need all of them. And most importantly, talk to your credit card company before things spiral out of control as there may be programs in place to help you.”
Related: 9 Fastest Ways To Pay Down Debt, According To Experts
Once the Debt Is Paid Off
Don’t abandon the good habits you learned by ditching the budget or putting the $5-a-day latte back in your life. Instead, put the money you had allocated toward your debt to your debt-free future.
“While paying off the debt may be the immediate goal, staying out of debt should be the long-term focus,” said Zack Hubbard, a certified financial planner with Greenspring Advisors in Towson, Maryland. “This can only be accomplished by identifying the issues that caused you to get into debt in the first place. Were there a number of unexpected expenses throughout the year? Establishing an emergency fund of three to six months of expenses can help. Are you running a monthly deficit and using credit cards to supplement? Creating and keeping a budget can help curb your overspending.”
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This article originally appeared on GOBankingRates.com: What Should You Do If You Racked Up a Ton of Debt Last Year?
