If you have been keeping up with my blog articles, I wrote two blogs about inflation. That is because I am concerned – between the economic stimulus money, the advanced child tax credit, and increased prices, people are over-spending. Additionally, there are individuals that count on their tax refund check and may not be getting it, so I want to provide you with 3 tips for dealing with debt.
Step 1: Know what debt you have
A good starting point is gathering information on the debts that you have. This may come from loan agreements in your files or statements you received in the mail. Another source of gathering this information is your credit report, which can be obtained from AnnualCreditReport.com. The Your Money Your Goals toolkit contains a Debt Log tool to make it easy to assemble the information in one place or you could gather all the information on a piece of paper. Information needed includes the name of the debt, payment due, total amount left to pay, and interest rate.
Step 2: Develop a plan
You have all the information, now what is your plan? There are two strategies to tackle debt, the snowball method or the highest interest method. There are pros and cons to both. The debt snowball focuses on getting rid of the smallest debt. Once it is paid off, you can apply the money going towards that debt to the next lowest debt. The other strategy is to focus your efforts on paying the debt that will cost you the most money (the highest interest). You can determine what will work best for you and your situation. What’s more important to me is that you have a plan and develop a SMART goal. Here is a good tool to develop SMART goals.
My Extension colleagues from Utah State University developed a program that can assist in developing an approach to tackle paying off your debt. It is called PowerPay.org. You can enter information about your debts and explore scenarios to customize your strategy.
Step 3: Assess along the way
It would be nice if life was perfect, but it is not. You may run into bumps along the way such as an unexpected car repair, broken appliance, perhaps you had to change jobs – don’t worry, life happens. As you try to figure it out, return to the basics. Are my purchases addressing my wants or needs? You know the answer to that question. Small decisions add up quickly, such as eating out less and choosing lower cost options. As your situation stabilizes, go back to step 2 and revise your plan.
Now I could add a step 4, but will use this one as my closing. Believe in yourself. No one knows you better than you do. Sometimes it can be difficult to see the light at the end of the tunnel. Remember, you can do it! Stick to your plan and you will get there.