How to Reduce Debt in 2022
The new year is a great time to set goals and focus on making improvements that matter to you. One area where a lot of people hope to make progress is in debt reduction. Here are some ways that you can use to help you reduce your debt in 2022 and put yourself in a stronger financial position.
Adjust your Budget
Your budget shouldn’t be something that you set once and then never touch again. Even if you’re doing a great job following your budget exactly, it’s still a good idea to review it every so often and make adjustments as necessary. Does your budget still reflect your reality or can you change a few things so you’ll have more money left over to pay down your debt?
Trim your Expenses
When you’re reviewing your budget, look for areas where you can make cuts. It might be possible to reduce the amount you spend on food, for instance, if you bring your lunch to work more often and only order take out once a week instead of three times. Or you might find that you can save some money by walking to the store instead of driving, for example.
You’ll also want to take a look at your subscriptions. These days, many people have a lot of different subscriptions and you might not even remember which ones you have. For instance, if you’re subscribed to any video or music streaming services, think about whether you actually use these services enough to justify the cost. The same is true for digital news subscriptions, software or app subscriptions, and even gym memberships. Look at your cable bill as well. Are you watching all of the channels you pay for?
It’s a good idea to look at what you’ve signed up for and consider cutting some services that you don’t use very often. This will give you some additional money to put towards debt repayment.
Are you tracking your spending? If you’re not, it’s a good idea to start. If you don’t track what you’re spending, you’ll be much more likely to overspend, which can get you into debt trouble. When you’re hoping to reduce debt, the last thing you want is to add on additional debt.
Prioritize Debt and Expenses
If your goal is to reduce your debt in 2022, you’ll need to make some choices regarding how you spend and how you pay off your debt. Take a look at all of your expenses. Then rank them from most important to least important. Your most important expenses will likely be your home, groceries, medical bills, transportation to and from work, etc. Examples of less important expenses are dinners out, entertainment, and other unnecessary expenses. Once you’ve ranked everything, use this information to come up with a plan to save some extra money for debt repayment. See if you can reduce or eliminate some of the less important expenses. Chances are, you won’t even notice you’ve cut them after a while and you’ll have more money left each month to put towards your debt.
Then look at your debts. Rank them in order of how much they’re costing you. This means looking at how much you owe to each creditor as well as how much interest you are paying. Chances are, your costliest debts will probably be credit card debt. These debts usually have the highest interest rates. However, this will depend on your situation.
Once you know which debt costs you the most each month, focus on paying that one first while making minimum payments on your other debts. Once your most expensive debt has been paid off, focus on the next most expensive one, etc. until all of your debts are paid off. Remember to continuously watch your budget and avoid adding on any additional debt while you’re working on debt repayment.
Set a Goal
If you set a specific goal, you’ll be a lot more likely to achieve it. For instance, instead of saying “I will pay off my debt” try saying “I’ll put an extra $200 towards my credit card debt each month” or “I’ll pay off my outstanding line of credit by July.” These goals are specific and therefore easier to follow. Plus, when you have a specific goal, it’s easier to track your progress and see how you’re doing.
If you have determined your debt load is too high, or no longer manageable with some assistance, please reach out to our licensed professionals today by clicking on the FREE CONSULTATION button, below, or giving us a call. We are here to listen – and to help you!