If you aim to go debt-free in 2021, you have chosen to fight the good fight. Congratulations on your choice! You deserve all the support and help you need to achieve your goal.Now that you have made up your mind about going debt-free, it is time to draw up a plan. Here is a list of steps you can take to draw closer to your dream of debt resolution this year.
- Create a budget
- Prioritize your debts
- Set up a spending plan and a debt repayment plan
- Do something about your interest rates
- Try to improve your credit score
- Control your use of credit cards
- Consider debt settlement if your debt is unmanageable
Let's look at each of these steps in a little more detail.
Create a Budget
When setting up your budget, be sure to include all your income and expenses. That means fixed expenses, such as mortgage and auto payments, and variable expenses like money you spend on entertainment, eating out, etc.
The difference between your income and expenses is the money you can set aside each month to use as you please. The bigger this difference, the more debt you can shave off your accounts every month, and the faster you can get out of debt.
If your expenses outstrip your income, you are living above your means and spending more than you earn. Try to put an end to this situation quickly by either increasing your income, reducing your spending, or doing a little of both.
Prioritize Debts
Some of your debts should be prioritized over others. Secured debts may end up claiming your home, your vehicle, or other physical assets you own. You should pay those debts first if possible. Unsecured debts such as credit card debt, personal loans, and medical debts can be assigned a lower priority. Know which bills to pay first. Here's a general way to prioritize debt if you're still in doubt:
- Pay for food and medical expenses that require immediate attention.
- Pay your rent/mortgage to secure the roof over your head.
- Pay for basic utilities.
- Make your car payments so that you have transportation to get to work.
- Take care of your taxes, child support payments, etc.
- Address unsecured debts.
- Make payments on debts you have secured with household items.
A Spending Plan and a Debt Repayment Plan
A spending plan will help you impose limits on your spending, eliminating some of the stress you may face on that front. It will save you money and give you a valuable clue about how big a gap you need to cover to make ends meet.
Once you have established your priorities, you can allocate your discretionary allowance to where it makes the biggest impact. Debt resolution is like a self-feeding fire. The more debt you eliminate, the more money you will have left to tackle your remaining debts.
Lower Interest Rates
Interest is like a thorn in your side. It sneaks up on you, and it siphons your money away without delivering anything in return. Interest makes up a significant part of the cost of your debt.
To reduce it, consider the following options:
- Call your creditors and ask them to lower your interest rates temporarily or permanently.
- Use a balance transfer card to shift your high-interest cards to a lower-interest one.
- Explore debt resolution options like a debt consolidation loan with a low interest rate or debt settlement.
Improve Credit Score
Your credit score determines what financial opportunities are available to you. You can improve it by improving your debt-to-income ratio.
There are two ways to improve this essential credit score factor.
- Increase your income by requesting a raise or getting a second job.
- Reduce your debt by whatever means you can.
A higher credit score can give you access to a debt consolidation loan with much lower interest and thus assist with your debt resolution efforts.
Cutting Credit Card Spending
Using credit cards is okay, but only if you keep your spending under control and your balances paid off. For most credit cards, if you pay off your balance in full each month, the credit card company does not charge interest on the purchases you make. Try not to charge any more on a credit card than you can pay in one month's time. Limiting your credit card spending and making timely payments is the responsible way to use credit cards.
Avoid using your credit cards to pay for impulse purchases, necessities, or emergencies. Set aside enough money in your budget to handle emergencies without the use of credit cards.
Consider Debt Settlement
Debt settlement can give you a way out of a desperate financial situation. When you settle your debt, you let a debt settlement firm negotiate the forgiveness of some of your debt with your creditors. With debt settlement, you typically pay less than the original amount you owe and reduce the time it takes to get to a debt-free status.
Contact a ClearOne Certified Debt Specialist at 866-481-1597 to learn how debt settlement would work in your particular case. To learn how much you can save through debt settlement, you can get a free savings estimate today.
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