Resolution Success – Paying Down Debt

It’s January, and that means that all around you, people are trying to improve their lives. More than any other time of the year, January is when everyone attempts to fix past problems and make their lives better. I’m certainly including myself in that group; it’s only six days into 2012, and two of my posts so far have involved my goals for the coming year.

Given that so many people are taking the time to focus on their resolutions and trying to improve their lives, I figured that it would probably make for a good blog entry (or four) to look at some of the more common personal financial resolutions and provide on how to accomplish them. So, for the next four Fridays, I’m going to providing advice on achieving Resolution Success, starting with

Paying Down Debt

This is a perennial favorite resolution: most of us have some debt, and it’s a rare person who doesn’t want to be debt free. Heck, I’ve covered this exact resolution before. (Although, looking back on it, I realize that I wasn’t as clear on how to actually pay down debt as I should have been; ah, the things you can learn by being a blogger.)

It's almost as good as book learnin'

But it’s obviously a tough one to actually achieve, otherwise there wouldn’t be so many people who make the resolution year after year. Since I find myself in the same boat as many people, facing quite a bit of debt and wanting to pay it down, it’s an area I definitely want to focus on this year. With that said, here are some tips to help you (and me) pay down debt this year:

-Figure Out a Plan of Attack, and STICK TO IT: As you might guess, the topic of paying down debt is a popular one, which I am hardly the first person to tackle. There are more than a few gurus with their own personal favorite ways to tackle debt, from Dave Ramsey’s Debt Snowball to Flexo’s Debt Avalanche, and pros and cons of each. Hashing out the best method is not what this article is about (and the best method for YOU is something I can’t tell you, anyway), but the important thing is that once you have a plan you feel will work for you, you need to stick with it. Going from one plan to another to another (or worse, dropping your plan altogether) will be worse than sticking with a single plan, even if that single plan is less than ideal.

-Pay More Than the Minimum: The centerpiece to every debt elimination plan is to pay more than the minimum on one particular debt. (Which one is a major source of debate, of course.) Trying to pay off your debt while paying only the minimum is a surefire method to remain in debt for years, if not decades, longer than you need to be. While some debts, like student loans, are designed to be paid off in a specific number of years (ten for most student loans), others can take decades to pay off at the minimum payments (and may not necessarily ever be paid off at those rates). If you aren’t putting more than the minimum into one of your debts, you’ll need to do so if you hope to ever declare yourself debt-free.

-Negotiate Better Rates, if Possible: It’s a situation of ‘ask, and ye shall receive’, at least sometimes. The simplest way to lower your credit card or other debt interest rates? Ask for lower rates. It really can be that simple. The worst that happens is your creditor says no, and the best is that you find yourself charged hundreds or even thousands less as you work to pay off your debt.  While I can’t say for certain whether your lenders will be willing to cut your rates, asking is the only way to know for certain.  Better yet: find out the rates you could get by transferring your debt to another creditor, and use those rates to negotiate better rates.  Worst case scenario, you know where to get to get lower rates if your current creditors won’t play ball.

-Put as Much Money as Possible Towards Debt Elimination…: Regardless of what particular repayment tact you choose, you’ll be most successful by putting the maximum amount of money possible towards debt repayment. You might say that you don’t have any money available; if you did, why would you be in debt? But there’s usually money to be found, if you put your mind to it. There are probably services you use, from cable TV to subscription websites, that you can cut, at least until your debt is gone. There are likely items in your house you could sell to bring in some extra money. And speaking of extra money, have you heard that some people even make a few bucks online doing something called ‘blogging’? If you put some time and effort to it, you can potentially derive quite a bit of additional to help your debt repayment.

-…But Make Sure to Have a Reserve: It’s tempting to go whole hog when you are paying down debt; after all, every dollar of credit card debt you eliminate is one less dollar you owe, and thus one less dollar accruing interest. But you need to have some money set aside in an emergency fund; otherwise, the moment you run into financial trouble, you’ll find yourself in even deeper debt. How much of an emergency fund to have is another of those issues you’ll hear numerous opinions on, but you should have enough that any foreseeable problems can be handled without having to add further debt.

-Be Careful About Adding New Debt: I’m going to take a different tact here than the average debt elimination adviser. Most sources you’ll read say to not add any more debt as you pay down what you owe; things like cutting up your credit cards and canceling them as soon as you eliminate what you owe. This is not bad advice, particularly if you find yourself spending money you don’t have anytime there is plastic in your wallet. But, I understand that there are times when you find yourself all but unable to avoid adding further debt. Particularly if you are a student and making little, if any, income, you’ll likely have to go into debt simply to keep a roof over your head and food in your belly. The trick is to be careful and only add more debt when it is absolutely necessary. So, food, gasoline (assuming you are going to and from classes or work, not joyriding across the country), and rent: yes; expensive parties, fancy clubs, and high-class booze: no. A good rule of thumb: Try not to add any debt that doesn’t directly help you to earn more in the future.

There are a few tips to help you take that debt off (and keep it off). Does anyone have further suggestions they’d care to share? Or perhaps horror stories of finding themselves in too much debt thanks to doing things wrong? Inquiring minds would like to know!

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