debt – Breathing Room

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.

Pay down that old debt in the coming New Year!

The New Year holiday creates a feeling of starting fresh and encourages us to set new goals. While diets come to mind, setting new financial goals should be on the top of our lists. As you reflect on the past year, focus on your experiences – build on what worked and what didn’t to shape the new year’s money habits. Here are some ideas to consider as you set your financial goals for the New Year.

New Savings Account for the New Year

Think about what you want to save for the coming year and commit to opening a savings account to reach that goal. Examples can be creating an emergency fund or setting money aside for your children’s future college tuition. Decide on the type of savings account that will meet your goal and commit to depositing a set amount on a regularly to get into the habit of saving. For example, if you open a basic savings account, deposit $25 every month and sign up for direct deposit or automatic withdrawals from your checking account. Increase the amount once you are comfortable with saving.

Visit https://www.fdic.gov/consumers/consumer/news/september2018.pdf and https://www.investor.gov/introduction-investing/basics/save-invest for information about various savings accounts.

Pay Down Old Debt in the New Year

Confronting your debt and thinking about how to pay it off can be scary and overwhelming, but you should use the New Year to face your fears. First make a list of your debts, noting the monthly payment, current balance, and interest rate, and make a plan to start paying them down. Experts recommend focusing on either debt with the highest interest rates or debts with the lowest balances to pay off. You will likely save more money paying off debts with the highest interest rates but it may be faster to pay off the smallest balances first. Whichever method you choose, start by adding a small amount to one of your current payments.

Visit https://www.fdic.gov/consumers/consumer/news/cnfall17/debt.html and https://www.consumer.gov/debt#!what-to-know for additional information.

Get Organized

Keeping your finances organized will help you control your money and achieve your financial goals. Some basic tasks to help you start organizing include making a budget, tracking your spending, and putting a system in place to ensure you pay your bills on time every month. Monitor your credit card and bank statements for any unexpected fees or unusual activity. The easier you find mistakes or unauthorized transactions, the easier it is to correct them. As you organize your finances, start small by picking one organizational task and focus on that task for one month before adding another. For example, start by making sure your bills are paid on time by setting up automatic bill pay from your bank account.

For more information on managing your finances, explore our Financial Checkup at https://extension.umd.edu/finance.