5 Ways to Get out of Debt in the New Year

FM Holiday Debt Blog 1.22.16

The New Year is a great time to examine your finances for the year ahead. And attempting to get your budget back on track after heavy holiday spending can oftentimes be cumbersome. So what do you do? Well, you’re in luck. In this post, we highlight five ways to get out of debt after the holidays.

1) Set New Spending Limits

Identify areas in your life where you tend to overspend that fall outside of the “needs” bucket. Then, create a budget for the different types of purchases you want to indulge in throughout the month and put a cap on each. Doing so will help you control excessive spending and keep disciplined on what you can do without.

2) Stop Spending Money You Don’t Have

Get into the habit of only spending money you do have, instead of adding more charges to your credit cards. Know what you owe, make a list of how you plan to pay off what you owe, and stick to it. And if you have extra cash, use that toward paying down your credit card balances. Further, start off by cutting back on simple things like buying coffee; instead of buying lunch, pack it; and/or save gas by riding a bike or taking the bus.

3) Go Beyond the Minimum Payment

Don’t wait for that bill to arrive before taking action. Instead, try making weekly payments and more importantly, steer away from setting yourself up for a long commitment with your credit card company by just paying the minimum due. Let’s look at an example that uses a credit card balance of $1,500 and APR of 18 percent – if you only pay the minimum due of $37 per month, it will take you 159 months to pay off that debt with a total interest charge of $1,760. However, if you pay an additional $10 it’ll only take 44 months to pay off your debt with a total interest charge of $557.59.

4) Ask for a Lower Credit Card Rate

This may sound like a no-brainer, but just simply call your credit card company and ask if your rate can be lowered. Say you have $5,000 in debt on a credit card with a 20% APR. If you pay $150 per month, it’ll take you 50 months and $2,360 in interest to pay off that debt. Reduce that interest rate to 15 percent and you save roughly $800 in interest and six months of payoff time.

5) Consider a Balance Transfer

If you are eligible for a balance transfer at zero percent for a period of time, sign up as this may be another alternative to reduce your interest charges. Also make sure you understand what the transfer fees are so that you’re prepared. For example, you can save $265.48 on a $5,000 debt with a typical balance transfer, assuming a three percent balance transfer fee, a 12-month zero percent intro APR, and the debt being paid off within a year.

We hope you find these tips helpful! Let us know what you do to get out of debt after the holidays in the comments section!