5 New Years Resolutions To Eliminate Debt

2018-01-09   minute read

Leah Drewcock

Debt Solutions

Aside from getting in shape, finally getting on top of debt is among the top New Year's resolutions made every year. While some achieve that goal, unfortunately most fail. But it's not because they lack discipline or willpower or don't want it enough. It's because they don't have a plan.

Getting out of debt – especially considering the level of debt most Canadians are in – is a massive undertaking. However, it can be made easier with a clear idea of how you're going to get there and a powerful set of tools to help you on your journey. By setting the right goals, using strategies that work for you, and becoming more accountable for how you spend your money, permanently getting out of debt will be possible for you in 2018.

Below are five simple and effective New Year's resolutions you can make to give you a head start and a fighting chance of defeating debt this year. 

Track Your Spending

Simple but effective, recording your spending habits is essential for any successful debt reduction strategy. At a time when anything you want is as easy as tapping a piece of plastic, this practice forces you to be more mindful with your money. By knowing every dollar that goes in and out of your bank account, you will become more accountable for your spending and your habits will become more intentional. As your awareness of your shopping impulses heightens, so too will your power to control them.

Having a running track record also provides a critical reference for regular short- and long-term reflection. It allows you to measure your successes and setbacks and shows you where adjustments can be made to stretch your paycheques as far as possible – ultimately allowing you to contribute more against your debt.

Don't worry about how to do this. Any method that is clear, consistent and that you will stick with over the long term will be the one that is perfect for you. For some people, that might mean keeping a spending journal, bank book or notepad on them at all times. Others might prefer to maintain a monthly spreadsheet or use a smartphone app. An effective template to start with is available for free on our website.

Reconsider Credit

If you continue spending on your credit cards or lines of credit despite wanting to get out of debt, you're unlikely to make much progress. Getting serious about your goal may mean it's time to cut up your credit cards and close your lines of credit. At first, this might feel like an extreme measure and one you meet with a fair bit of resistance. But it's worthwhile to weigh the costs and benefits so you can decide whether it is the right move for you.

Consider whether the convenience of always having "money" at your fingertips is worth the long and vicious cycle of ever-increasing debt payments each month – especially considering the inflated interest costs and stress it brings to your life. Ask yourself, "is this worth my financial security?" Brainstorm some ideas for what your spending habits would look like if you didn't have credit devices at your disposal. Then decide whether they're a must have or simply a convenience you've grown accustomed to.

If closing your credit accounts seems too extreme at first, start by reducing your credit limits so you can reduce your overall debt burden and make it easier to manage. Keep reducing them as your debt load shrinks and you're able to put more money in savings. Soon you'll realize you don't need debt at all and will finally feel comfortable giving it up for good.

Set a Timeline

If you went into debt over the holidays, it is probably unreasonable to expect it will be paid off by the end of January. Set a realistic timeline and make a plan to see it through. This means looking at all your finances – income, living expenses, occasional expenses, leisure costs, minimum debt payments, etc. – and determining what can be set aside to pay down your debts. Divide the total amount owing by what you can afford to contribute each month. That will tell you how many months it will take to become debt-free.

Next, decide which debt repayment method works best for you. Two common ones include the debt snowball – where you pay extra toward your lowest debt first while making the minimum payments on your remaining debts, and the debt avalanche – where you pay extra toward your highest interest rate debt first while making the minimum payments on the rest.

While I like the small cumulative small wins the debt snowball provides, ultimately the best method will be the one that works best for you. 

Increase Cashflow

Maybe you've tightened up your budget as much as you can, cut all unnecessary expenses and redirected all your leftover finances to your debts. Yet, you're still not seeing a meaningful reduction in what you owe. At this point it may be beneficial to consider how you can increase your income to make larger contributions to your debt.

It may mean working overtime wherever possible, finding a part-time job or monetizing a hobby by opening an online store to sell paintings, knitting or other crafts. You could also take on odd jobs such as babysitting, snow removal or cutting lawns. Or you could sell unused and unwanted items online or at a garage sale. Whatever you choose, you may be surprised by how much you can earn for a little time and effort to give your budget the boost it needs.

Start Small

Human nature often makes us think we have to go all in all at once. We try to sprint our way through a marathon, thinking the harder and faster we go the quicker and less painful the process will be. Low and behold, 20 seconds into a three-hour race we've completely burnt out and find ourselves staggering back to the starting blocks, wondering where it all went wrong.

From fitness to finances, this is where most New Year's resolutions fail. The quick fix is a dangerous mirage. If you're shooting for a meaningful shift in your long-term financial outlook, you need to look beyond ambitious and intense short-term actions. What's more important is the kinds of sustainable lifestyle changes you can incorporate over the months, years and decades ahead.

Maybe you start by tracking your spending (as above) and once you have an idea of where some non-essential spending is occurring, you can begin to cut back gradually – incrementally applying the surplus income to your debt instead. Once you've built a foundation you feel comfortable with, you can begin stacking additional layers on top of it, such as a debt snowball or taking on a part-time job.

To paraphrase Van Gogh, "great things are done by a series of small things brought together." Or, to repurpose an old adage, there is only one way to eat an elephant: one bite at a time.

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