The new year is the perfect opportunity to get a handle on your debt, reorganising your budget and getting yourself in a better financial shape. Lots of people promise themselves that the new year will be the time to address their debts, so make this the year that you turn new year’s resolutions into action.
There are lots of different debt management techniques which can help to reduce what you owe. The link provided is useful for further reading but if you’re short on time we’ve listed some of the most effective strategies below that could transform your finances and set you on the path for a better fiscal future.
Work Out Exactly What You Owe
You might think you know what you owe, but have you ever sat down and counted it up exactly? Rather than just estimating the figures, find out exactly what your debts are, and how much interest you’re paying. Underestimating how much you have outstanding is a common mistake and means you’ll never really make any inroads into your debts.
Another benefit of writing it down is that you can track how you’re doing. There’s nothing more motivating than seeing your debt starting to reduce, and having it written down can amplify that feeling tenfold. Try using a budget planner or if that feels like hard work, there are plenty of apps to do the hard work for you.
Make Yourself Accountable
It’s very easy to wander off track, especially if you’re on a particularly tight budget. Paying back your debt isn’t always a lot of fun, and it can involve sacrifices along the way. It’s hardly surprising therefore that many people find it hard to stay motivated for a prolonged period.
One way to combat this is to build in strategies to make you accountable for your progress. Ideally, this means roping in another person as it’s too tempting to cheat yourself. Whether it’s a family member, partner or a trusted friend, set up an agreement with them that means you have to pay a penalty if you don’t stick to the plan. It could be something as simple as cleaning their apartment or walking their dog, but it’s crucial it’s something that you won’t enjoy. If you know there will be consequences for failing to stick to your debt management plan, it will give you an added incentive to keep going.
Build In Treats
Of course, it doesn’t all have to be about punishment and being hard on yourself. Finding as many ways as possible to stay motivated will help you stick to your budget.
If you feel deprived, you’ll be miserable while you’re paying off your debts and you may struggle to make it through to the end of your plan. It’s therefore a good idea to add a little slack into your repayments so you can treat yourself now and again.
Having something fun or indulgent to look forward to can be enough to stay on track. Plus, if you’re not rewarding yourself frequently, when it’s time for a treat you’ll enjoy it even more.
Don’t Make Drastic Changes That Aren’t Sustainable
The trick to a successful debt management plan is having a budget that you can stick to. If you make harsh cutbacks that are drastically different from your existing lifestyle, the changes could feel too restrictive.
Of course, the more you can afford to dedicate to your repayments, the quicker you’ll be debt-free – but only if you can stick to the whole plan.
For most people, making more modest changes is a more sustainable approach. For example, if you normally have a takeaway three times a week, you could cut back to just once on a Friday night. You could adopt a similar approach with alcohol or nights out; not only will your finances be in better shape, you’ll be healthier too!
What did we learn?