January is the month when commitment to New Year’s resolutions is at its highest. “I’m going to pay off my debt”, is likely to be number one many lists, alongside ‘quit smoking’, and ‘lose weight’. This may still hold its difficult status, especially after the festive season spending. To pay off your debt is no easy task, otherwise everybody would be debt free and we wouldn’t be the world’s biggest borrowers, according to the World Bank. Public debt is rising fast, and so are the costs of servicing it. What will we blame? Perhaps, our spending habits.
So why is 2016 a great year to pay off your debt? Well, living isn’t going to get less expensive, slowly and assuredly prices of everyday goods will rise. With an imminent international debt crisis, you can get yourself into a better financial position by facing your debt head on and make 2016 your best year yet!
To aid the fight against indebtedness, Fincheck has put together 3 steps you can take when you embark on the seemingly impossible task to pay off your debt and all of your short-term debt in 2016.
1. Attend to your most expensive debt first.
It’s simple, review all the debt under your name to figure out what is costing you the most in terms of interest. People have found that the best way to get out of debt is to do so strategically. After paying debts that are on fixed monthly payments (mortgage, vehicle and short term loans), make the minimum payments required on your debt with the lowest interest rates and maximize your payments on those with the highest interest rates. Once a debt is paid, use this extra money to pay down the debt with next highest interest rate. This will help you pay down all of your debts faster. Don’t make the mistake of paying the smallest first, this is ineffective as it gives you a seemingly psychological milestone of paying debt off, but this goal is misguided.
2. Delve into your cash flow statement and create a monthly spending plan.
It’s important to understand your income versus your expenditure on an ongoing basis. We have a tendency to look at our budgets only at one point in time, but this prevents us from having a fundamental understanding of what we are spending money on, what are necessities and how much is of a luxurious nature. It’s an assessment that’s difficult, but one has to look at all the debt one has accumulated and ask; how much of it was absolutely necessary? In other words, trim your expenses to free up some cash, this will rule out the possibility of going down another slippery slope in 2016. If you’re struggling to get a grip on where your money is being spent, there are many tools online that can help you, take a look at this great solution called 22Seven, and if interesting facts on world indebtedness is your thing, click here.
3. Put your cards on ice.
Getting out of debt requires taking those credit cards out of your wallet so you’re not tempted to use them. Put them away until you have completely paid off the outstanding balances. Credit cards are a saving grace in times of emergency, so only use them if you absolutely must. Paying for your purchases with cash instead of credit will help you separate your needs from wants, stay conscious about your spending, and make you think twice. Wants will always be infinite, but it doesn’t take as much as you think to satisfy your essentials.
Fincheck wishes you all the best! Oh, and one little thing, don’t forget that perhaps the best thing you can do to ease your debts, is to increase your income! Come on, you’re creative as can be! Why not start something on the sideline to help you cope? You never know what good might come from it.