Five Tips to Get Out of Debt in the New Decade
- January 13, 2020
- By: Greenpath Financial Wellness
Featuring Jeremy Lark, Senior Manager of Client Services
If you made a New Year’s Resolution to get out of debt, today’s a big day. By mid-January, most resolutions have fizzled. But — YOU can say, NOT TODAY. If you feel yourself slipping, take a minute for a pep talk, remind yourself that you can do this, and check out our post on goals that stick. Retool that resolution, and get back on the bandwagon, friend.
Wherever you are on your journey, making the choice to get out of debt is a game-changer. People tell us all the time that signing up on a GreenPath debt management plan and finally getting out of debt changed their lives. These 5 “dos” are helpful tips for getting out of debt.
5 “Dos” to Get Out of Debt
1 – Write Down Your Awesome, Attainable, Specific Goal to Get Rid of Debt
Make your roadmap with a clear, specific goal that you can measure and see your progress. We’ve posted about this before, and it’s still true. The first thing to do is to start. Decide what you want to accomplish in a very specific term
- Lay out how much debt you have to pay off and why it matters to you.
- Give yourself a deadline and set mini-goals along the way.
- Make sure it’s realistic and write it down to increase your chances of success.
2 – Write Your Debt Pay-Off Plan into a Monthly Budget
Get down to the nitty-gritty about how you will reach your goal. Use this worksheet to get started, or grab a calculator:
• +Total up your take-home income (how much you make from paychecks and other sources after taxes)
• -Subtract the amount you need for living expenses (things like groceries, rent or house payment, utilities, car payments, loan payments, insurance, child support, etc. Stick to essentials here to free up the maximum for paying off debt.)
• -Subtract the amount you need to cover your minimums on credit card bills
• =This gives you the amount you have left to spend on paying off debt faster
Optimize your budget for getting out of debt by reducing non-essential expenses. Things like home entertainment, meal planning, saving money on groceries, and reducing energy bills are good places to start.
What to do if your budget doesn’t balance: Ask for help. You are not alone. On average, GreenPath helps around 200,000 people a year to get out of debt and improve financial health.
3 – Remix Your Spending Habits to Get Out of Debt Faster (and Save Money)
Take a look at where you spend your money and set a milestone goal to learn new habits that get you the most bang for your buck. The more you can free up from non-essential living expenses, the more you can devote to getting out of debt faster. And, the faster you pay off debt, the more money you save in interest and fees.
Figure out what your spending habits are, and how you might change them to get out of debt. This online class on Redesigning Your Financial Habits is a great place to start. In about half an hour, you will learn some of the science behind habits, identify your spending habits, and make a plan to retool them to work for you.
4 – Bring Your Debt-Free Future to Life with Mental Practice
The simple act of imagining your future can help bring it about. Olympic athletes use this mental visualization technique to help them win. You can do it, too – for free – from your living room. Find a quiet spot, and imagine, in great detail, what it feels like to be debt-free. Use all your senses and emotions.
• How does it feel to get rid of my credit cards? What does my wallet feel like without them? Is it lighter? Empty? More organized? What’s in there instead?
• When I pay for something, will I use a bank card or cash? What sound does it make? How does it feel in my hands? What does it smell like?
• When I get the mail and sort through my bills, how does my stomach feel? What is my breathing like? What expression is on my face?
Building a vision board is a helpful way to give yourself a constant reminder of success. Gather items, sayings, photographs, whatever inspires you, that bring your debt-free future to life. Pin them up to the board and hang it in a place that you can see it every day.
5 – Act on Your Debt Payment Plan, and Optimize as You Go
The biggest, most important thing is to take action.
• Put your plan into action. Plan your paychecks and check back to see how your actual spending compares with your plan. Use the Highlighter Test to see if your spending habits are in line with your goal, or if you might need to change things up a bit. Make adjustments as you need to.
• Check in on your progress and celebrate wins. Keep an eye on how you’re doing on your goal. Celebrate your wins when you hit a milestone. This positive reinforcement for your new habits actually trains you to stick to them and makes it easier to stay committed if the going gets tough.
• Automate everything. Set up direct deposits and automated payments so that you don’t miss due dates and get hit with a late fee. Use alerts and overdraft protection to help you avoid mistakes.
• Choose a debt payoff strategy that works for your situation. You will probably want to pay the minimum on all your debts and focus extra payments on one at a time. When you pay one account off, redirect the monthly payment to the next one in line, adding it to the minimum you were paying already. This way, each time you retire one debt, your payment on the next one gets bigger.
Depending on your situation, there may be options for you to get out of debt more quickly. If you are having trouble keeping up with your bills and debt is keeping you up at night, GreenPath can help.
Jeremy Lark is dedicated to combating financial strife and stress through financial wellness, education, and technology. Through his work as Senior Manager of Client Services, he has helped GreenPath’s clients find the tools and resources they need to turn their lives around. Jeremy has been with GreenPath for 12 years, and while a born-and-bred Yooper, currently resides in the Detroit area.