Debt can be a drain on your financial situation. Not only does carrying too much debt weigh down your current finances, but it also tends to have a negative impact on your financial future. The good news is that you don’t have to carry your debt with you forever. As you consider your goals for the upcoming year, consider taking a more proactive approach to debt management.
We will explore how you can manage your debt more effectively and potentially make this year the year you become debt-free.
An aggressive repayment plan can help you get out of debt faster and minimize the amount you pay toward interest.
2024 Financial New Year’s Resolution: Tackling Debt
Debt, especially high-interest debt, can put a damper on your finances. With the constant stream of monthly payments and interest charges, it can be difficult to get ahead. If you are tired of being in debt, then it’s time to make a change to your approach to debt management.
The first step is to make a mental commitment to changing your ways. In general, households accumulate debt by living beyond their means or making unintentional spending choices. If you want to pay off debt and stay in tune with your financial health, be honest with yourself about how you ended up in this situation in the first place.
How to Tackle Debt in 2024
If you find yourself with credit card debt, you aren’t alone. In 2023, total credit card balances hit $1 trillion, according to data from the Federal Reserve Bank of New York. With credit card debt totals higher than ever before, you might find yourself with an uncomfortable debt burden. Unfortunately, credit cards tend to have notoriously high-interest rates, which can make it all too easy to fall into credit card debt.
Regardless of the type of debt you carry, it’s possible to find money-saving resolutions and eliminate it once and for all. Below are some strategies and New Years money resolutions to help you tackle your debt in 2024.
See where you stand
As a first New Year's financial tip, the first step to getting out of debt is to determine exactly how much debt you have. Start by writing down all of your debt balances. Also, jot down the attached interest rate and minimum monthly payment.
At the end of this exercise, you should have a clear understanding of how much debt you currently owe. It’s helpful to understand how much you have to pay each month just to stay current on your debt payments.
Craft an aggressive repayment plan
Once you know the details of your debt, it’s time to make a repayment plan. While you could stick with the minimum monthly payments attached to your debts, that choice can often leave you in debt for years and lead to paying higher interest charges. With that in mind, an aggressive repayment plan can help you get out of debt faster and minimize the amount you pay toward interest.
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Two of the most popular debt repayment strategies include:
- The snowball method: The snowball method involves putting extra funds toward your debt with the smallest balance. Once you pay off that debt, you can put the extra funds and the eliminated monthly payment toward your next largest debt. Continue to work your way up to larger debts to get out of debt for good.
- The avalanche method: The avalanche method involves putting extra funds towards paying off your debt with the highest interest rate first. Once you pay off the debt with the highest interest rate, you can reallocate those funds toward your debt with the next highest interest rate.
Both repayment strategies have the same goal. In general, the snowball method is best for anyone who enjoys the motivation of small wins along the way. But if you prefer the most mathematically efficient option, the avalanche method is the right choice.
Build extra income
Extra income can go a long way to help you get rid of debt, especially if you funnel that income toward your repayment plan. Some ways to boost your income involve asking for a raise, picking up a part-time job, selling stuff from around the house, and building a side hustle.
Getting creative and building your income can help you get out debt faster.
Consider debt consolidation
Debt consolidation can be a useful strategy, especially if you have high interest debt. If you can snag a debt consolidation loan with a lower interest rate than your current loan, the switch could help you avoid interest charges and get out of debt faster.
Stay honest with yourself
Take some time to be introspective about the situation you find yourself in. Ask yourself how you ended up with this much debt. Be honest with yourself about the purchases you’ve made and the reasons for the purchases. A little honesty with yourself can help you avoid getting into debt again.
The Bottom Line
Getting out of debt is a worthwhile financial goal for the New Year. If you feel stuck with debt, make a commitment to getting out of debt in 2024.