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Making a Plan to Get Out of Debt in The New Year

Getting out of debt and managing finances is likely one of the most popular New Year’s resolutions.  Like many resolutions, this one can often fall by the wayside within a matter of a couple months or less.  However, debt is shown to be one of the biggest forms of financial stress.  In this circumstance, it can seem impossible to get ahead.  If you want to get out of debt in the new year, you are not alone.  Here are some steps to create a plan to get out of debt in the new year.

  • Get Out of Bad Habits.  This can be easier said than done.  Most of us have a spending habit one way or another.  For some, it is a bad shopping habit, or for others it can be gambling.  The key to kicking this habit is psychological.  If someone gets a thrill out of shopping, for example, it can be psychologically satisfying to buy a new handbag impulsively.  If habits like shopping or gambling help you overcome anxiety and depression, it might be time to find another healthier coping mechanism.  For this, try to find a fun physical activity that you enjoy.  Exercise is a great way to improve mood and boost metabolism, in place of the adrenaline rush received from less-healthy habits.  Perhaps you pick up weight training, running, or a sport such as pick-up football.  If this does not help, try seeking professional help.
  • Create a Realistic Budget.  Look at your income and figure out what you expect to earn in the next year.  It may be wise to use something called a zero-sum budget, with the help of a budget-tracking app like Wally.  The method of this budget is to allocate every dollar you make at the beginning of the month based on the previous month’s income.  It makes it easier to figure out how much is left over to save.  When you see your budget this way, it becomes easier to pay off bills and goals first, before spontaneous spending.  At the end of the month, be sure you save as much as possible.
    1. File Your Taxes Immediately.  Whether you are expecting a huge refund or not, file your taxes as soon as you get them in the mail or online.  If you are expecting more debt, it is better to let the IRS know ahead of time so you do not accrue penalties or interest.  The IRS Fresh Start Initiative is a great way to help you out of your financial situation.  However, if you are expecting a refund, get your money back as soon as possible so you can reinvest it in your debt.  Who knows, you might have a huge chunk waiting for you!
  • Prioritize Your Debt.  Do you have student loans?  A mortgage?  Credit card debt? You have already decided you want to pay off your debt, but now you need to know which debt you want to pay off first.  Some people choose to pay off their smallest debt first.  This way, paying small debts can feel like a lot off your plate.  This can encourage you to keep going, instead of feeling like your debt is one homogenous mound.
  • Imagine Your Success.  Reduce anxiety by rewarding yourself for small successes.  If it gives you security, review your bank statements when you feel anxiety welling up to reassure you that you are on track.  Over time, you will see those amounts decrease and you can breathe a sigh of relief.  You can also give yourself small rewards so you can be motivated to keep going.  Instead of focusing solely on the negativity of debt, reward yourself for coming closer and closer to financial freedom.
  • Reflect on Your Income.  Take a look at your income and see whether you are making enough.  If it is realistic for you, given your experience and life situation, it may be time to talk to your boss about a raise or start looking elsewhere.  Of course, this is not feasible for everyone, but it is a possibility for some.
  • Consult a Professional.  If you feel like you are in over your head and you need more help, it is worth it to seek out a professional.  A trained expert will help you to devise a plan to tackle your debt.

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