If debt was a competition sport, we would all be winning. By the third quarter of 2016, U.S. consumers had accumulated over $21.9 billion in credit card debt alone. That means $3.5 billion lost to interest payments at the end of the year, based on 16.2% APR. But don’t let those stats get you down — tackling your debt is a simple play when you take the time to strategize. If eliminating debt is a top goal for you this year, check out these five tips to clear your financial red zone.
Assess Your Line-Up
Great victories don’t happen by accident. The first step toward tackling your debt is understanding where it’s all coming from. Gather your bills and add them up so you know exactly where you stand. Get a copy of your free credit report and review it to see which debts have hit you hardest with late payment fees. Late payments and a high debt load can hurt your credit rating, which can mean lenders may charge you higher interest rates.
Make a Game Plan
Remember those New Year’s resolutions? Make one of them a vow to put yourself on a budget this year and look for any place where you can save money. You’ll most likely find it in your variable expenses (or the costs that fluctuate from month to month). They’re the “extras” that often come with small price tags (like a $4 latte), but can add up incrementally. The more you cut down on weekly expenses, the more money you have to pay down those debts. For instance, try brown-bagging your lunch instead of going out. Saving just $13 on food and coffee each day adds up to a $400 savings at the end of the month.
Blitz High-Interest Debts First
Review your statements and compare the interest rates you are being charged. Look for high-interest debts like credit cards and tackle those first — once the high-interest debts are paid off, you’ll have more money to begin making additional payments on other loans like your mortgage. If you have a lot of high-interest debts, it may be a good idea to talk to your bank about loan consolidation to get a better interest rate.
Plan for Fumbles and Losses
Accidents and set-backs are always bound to happen, so make sure you’ve planned for the unexpected. Even as you are paying off your debts, begin setting aside some money as an emergency fund. Ideally, you should have at least three-months’ income set aside where you can quickly grab it. If that amount isn’t obtainable yet, work toward a smaller amount like $1,000. If an emergency does arise, you can draw from the emergency fund rather than set yourself back by borrowing more money.
Flag Future Borrowing
Any loss in yardage towards your debt elimination goal means you will have to work even longer to regain that lost ground. No matter what else happens this year, resolve not to borrow any more money until you have paid off your current debts. It’s probably best not to cancel your credit cards — that can actually hurt your credit rating — but consider keeping them at home and out-of-sight until you have reached your financial end-zone.