It has been a challenging few months and starting the year in debt seems to be a common scenario for most people. And just as the economy was starting to open up, new variants are sweeping through the nation. Medical health facilities are starting to feel the surge again as patients are coming in more than the past few months.
But the vaccines have also proven effective for a lot of people in holding off a larger wave of infection. This has helped people stay on track in picking up their finances. Jobs are starting to come back and companies are able to resume operations again slowly. These are signs that the economy is starting to adapt to health challenges brought by the pandemic.
That being said, the financial challenges of the past few months have made it a lot more difficult for people to get back up on their own two feet. Most consumers are starting the year in debt more than usual. People are not new to debt but the health crisis has put many people’s back up against the wall and has run up their debt.
It is challenging if you are starting the year in debt but there are a few things you can do to help you manage the year right. Of course, it would not be an easy journey. CNBC even shares that Americans ended the year with about $1,2409 worth of debt from the holidays. Nothing ever worth it ever comes easy. You need to have a plan for how to fix your finances and must make sure that you follow through with concrete actions. Here are a few things to look into to help you back on the right track.
List down your debt details
If you are starting the year in debt, the first step is to make sure how much your debt obligations are exactly. The reason for this is that there are people who prefer not to know how much they need to pay back. They rip apart the statements they get at the end of the month or simply do not open them and put it at the bottom of the pile.
The fear of knowing is so severe that they just try to find ways to totally avoid the issue. But this will not help your journey any bit. In fact, the first step is to have a complete grasp of your financial situation. This means that you have to know just how much debt you are starting the year with. This will help you plan your next steps carefully.
Start opening those statements you get or if you get online copies, the better. You can even reach out to your lenders to check if you have the correct numbers. This helps you make sure that you are on point with your debt details. List down as many details as possible starting with the amount. Put in dates, interest rates, and even lender details so you have a comprehensive list on your hands.
Get hold of your household budget
If you are starting the year in debt, the next thing you need to do after creating a comprehensive debt list is to look at your budget. Your household budget needs to be as comprehensive as possible always.
In order for you to do that, you need to have all current financial details available to you when putting your budget together.
This includes your income where you need to list down all sources of money coming in every week or month. If you rely on one source of income, this part is relatively easy. But if you have multiple side gigs or passive income sources, you have to stay on top of all the money that is coming in. This helps make sure that you allocate them correctly.
The other side of your household budget is your expenses. This is where your debt payment comes in. Apart from recurring household expenses, and investments you make every month, debt payments need to be plotted into your budget. You need to know how much your expenses are and if your income can cover all of them.
Make necessary budget adjustments
You need to start making adjustments to your household budget especially if you are starting the year with debt. If your income covers all your investments, savings, and debt payments then you are in a good financial position. But if you are coming up short, you need to find a way to make everything fit into your income every month.
The first thing you can do is find a way to increase your income. It seems like a simple thing to do but this is easier said than done. The first option is to check how you can get an increase in your day job. It could be applying for a higher position or putting in extra hours if possible. You can also explore side gigs you can do after office. Just make sure that you can handle and manage your time properly.
You can also look at how you can bring your expenses down every month. This could be done much more sooner than trying to increase your income. One option is a frugal lifestyle. This is where you choose to live below your means. Some people choose to be a little more extreme with a bare-bones budget. Whatever you choose, the end goal is to spend less than before so you can allocate your income better.
Stay away from further debt
Starting the year in debt is challenging but if you keep on adding more debt, you are not making it any easier. As you try and pay down your debt, avoid adding to it at all costs. Fox Business shares that the average debt for a household is about $155,000. Of course, there will always be an exemption but this is where your needs and wants come in. You need to start asking tougher questions and looking at your motives – do you really need a brand new phone when the one you have is still great?
Your needs and wants could have been crossing lines lately especially with the pandemic still around. At its height, you could have doubled down on your needs and almost eliminated your wants. But as the restrictions started to lift, you begin to give in to your wants a little more. Paying down debt does not mean forgetting your wants completely. It just means that you have to be more mindful of how you use your money.
One of the things that can help you manage your debt payments is debt consolidation. This is helpful especially if you are able to consolidate under a card with a low or even 0% interest rate. More often than not, these are introductory offers that expire after a few months. It would be wise to try and pay off or pay down as much as you can during this period.
Invest for the future
When we talked about the household budget, it was not only about income and expenses. You need to include as well your investments or any fund that can help you in the future. This gives you the chance to future-proof your finances and help you enjoy your golden years as well. On top of this list should be your retirement fund.
You need to have a clear idea of what you want to do in retirement so you can plan for it. Are you going to put up a business, offer a consultancy service, or spend time volunteering for the community? All these will play a big part in helping you determine when you can retire and how much you need in retirement.
It is tough if you are starting the year in debt but there are steps you can take to help you manage your finances despite your situation.