Facing debt at the start of the year can be a challenging situation to be in. You could be carrying this debt for most of last year or you might have made a lot of wrong financial decisions during the holidays which landed you in debt. It can e buying more than what you can afford to pay back at the end of the month, leaving you with huge debt payments at the start of the year. Here are a few things you can do to help you manage this challenge at the beginning of the year.
Audit your debt situation
If you are facing debt early in the year, the first thing you need to do is understand your current debt situation. This is something a lot of people often overlook which is surprising since this is a crucial part of the whole process. Knowing where you are exactly gives you the information you need to put together a plan on how to get out of it.
When it comes to debt, the first items you need to understand is how much are you in for? What is your total debt amount? There are some people who choose to overlook this fact and try to live within estimates. They end up not knowing how much they really have to pay back their lenders. You need to remember that your finances deal with money which has to be exact.
Once you understand how much you are in for exactly, you need to look into every detail why it has come to that amount. Apart from being aware if you really made all those purchases, this process also helps you be more aware of your spending patterns and gives you the chance to identify your purchase triggers. With these, you get to plan for your succeeding purchases better and manage your expenses tighter.
Layout your financial plan for the year
As you are facing debt, the next step after you have a firm understanding of why you are in debt is to make sure that you layout your financial plan for the year. For some, this can be referred to as their financial resolutions for the next 12 months. You need to put this together to help give you some form of structure for your plans. This is important since CNBC shares that even a $400 emergency can put people in financial hardship.
As you create your plan for the year, you need to integrate your debt payments to make sure that you do not forget to pay them off. It is a good idea to try and focus on it in the early part of the year, especially with those that carry high-interest rates. Not only does it help you save money from potential fees and interest payments, but it also lowers down your stress level.
Your debt payment and your financial goals for the year needs to work in tandem and in harmony. Choosing to focus on one over the other can lead to financial complications which can put you in deeper debt. It is a tough job to balance these two but it is much more challenging when you choose to overlook one to prioritize the other.
Consolidate your debt
When you are facing debt early in the year, one of the best ways to get a handle on them is to consolidate your debt. If you choose to combine your payments under one account, it makes managing the payments a little bit easier because you get to concentrate on a single account. This is easier because you lower the chances of overlooking a payment due date.
When you have to worry about multiple payments every month, you might overlook some of them where you end up with a lot of fees and penalty payments. These are added on top of your monthly payments making them bigger than they need to be. This can take its toll on you and your finances putting you off budget with your payments.
One other benefit of consolidating your debts is that the program can essentially allow you to make lower monthly payments. This is possible because you either have a high credit score or you spread the payments over a longer period of time. You pay lower every month but you have to remember that there is a possibility that the total amount at the end could be bigger.
Put safeguards in place to help you manage debt
Facing debt early in the year can be the result of poor financial choices in the past. If this is so, you need to make sure that you get to avoid making the same mistakes again in the future. If you fail to do this, you could end up in the same situations year in and year out making you question your ability to manage your finances well.
Taking out debt because you wanted to celebrate the holidays in style, make sure that you save up for the same type of expenses next year. Credit card purchases can also make it challenging for you to manage your finances especially if you have the tendency to shop impulsively. To get ahead of this, you can make sure that you only use your credit card for planned expenses and never for the spur of the moment wants.
The idea in all these is to look at the reasons why you are in debt and find a way to make sure that you stay away or at the very least, minimize the possibility of them happening again. This increases your chances of taking full control of your finances and managing your debt obligations better especially at the start of the year.
Take on good debt
Facing debt should never be a cause of concern especially if you have a plan of repaying them back. This is true especially if you are dealing with what other people refer to as “good” debt. This might be a surprise but there are some debt accounts that are considered to be positive types that help a person’s quality of life.
One good example of this is taking our mortgage loan to help you get that dream house you wanted. If you are doing this, make sure that you understand all the pros and cons of owning a home. Good debt can also be about your student loans where you take them out to pay for your cost of attendance. This increases your chances of landing a better job and getting higher pay.
Of course, too much of a good thing is still bad for you and your finances are no exception. If you take out a mortgage loan that is way off budget just to impress other people, you could be looking at a difficult repayment program ahead of you. If you take out student loans without exploring all other options to find your college education, you could end up with a lot of debt payments even before you get your first paycheck
Work on your income and expense
There is a reason why you could be facing debt at the start of the year and a big chunk of that has something to do with your income and expenses. These two work hand in hand when it comes to running your household budget where debt payment is a big part of, If you can take control of your income and expenses, you stand a better chance of paying off your debt. This is important as USA Today shares that about 59% of adults live paycheck to paycheck making a budget all the more important.
Your income is simply the amount of money you earn in any given month. Normally, this is easier to monitor especially if you rely on a day job. Once you start looking for other sources of income from a side hustle or even a business of your own, monitoring could start to become challenging, The idea with your income is to make sure that they can cover your expenses.
Your expenses, on the other hand, is the amount you need to spend in order to live a comfortable life. This covers a wider net since it includes everything from your basic needs all the way to big-ticket expenses. The main idea with your expenses is to have a total amount which is well below your income level. This ensures that you meet all your payments and be able to save for future needs as well.
It is tough to be facing debt at the start of the year especially if you have big plans you want to achieve for the next few months. However, you cannot do anything about it but to make sure that you attend to them until you pay off the whole amount.