At a Glance
It’s that time of the year again: You’re likely brainstorming some new year financial resolution ideas related to your wellbeing. But don’t forget about your financial health. This year, take the opportunity to set some new year financial resolutions that will help you reduce debt.
“New Year’s resolutions equip you with the opportunity to turn over a new leaf. The pandemic has thrown the traditional budgeting methods out of the door as personal finances become subject to increased uncertainty. You should set realistic debt goals for your New Year’s resolutions achievable through your current income,” recommends Jessica Chase, Loan and Finance Expert at Premier Title Loans.
Realistic goals are key here. In order to pay off debt, you might have to make sacrifices. But you also need to feel like you’re living your life in a somewhat enjoyable way in order to stick to your plan in the long run. And for further accountability, Chase recommends sharing your goals with others and proclaiming your intention to pay down debt loudly:
“You should avoid keeping the resolution to yourself and instead share it with your family members. If you choose to bypass this step, the sense of accountability will decrease.”
Ready to set New Year’s debt resolutions and keep them? Financial experts shared their best tips to reduce debt below.
Freeze non-essential spending
Yes, this is a radical measure, but you should start by doing it for a week to help alleviate financial burdens instead of aiming to do this year-round (again, the goal is to be realistic).
“It may seem a bit radical, but freezing your non-essential spending for a week can provide you financial relief. Opting for this strategy can help you increase savings and allow you timely debt repayment,” according to Chase.
“I would recommend making a list of your non-essential items and categorizing them according to their priority. It would allow you to closely monitor your expenses before making a future purchase. If you are successful in this resolution for a week, try doing it for a month.”
Create a budget
Creating a budget should be at the top of your New Year’s resolutions list. Mike Thompson, a contributor at Hyperlend, says you should assess your spending habits and identify fixed expenses to understand your spending behavior: “A budget may sound restrictive, but it paves the way for financial stability.”
Cut your credit card usage
He also recommends cutting your credit card usage out. This will create financial discipline and prevent further debt from piling up. “Do not spend money if you do not have it on hand. Manage your credit cards responsibly, do not spend more than you have. The cycle of depending on your credit cards can lead to more debts,” he adds. These are essential financial tips for debt reduction.
Lower your APR
Another great debt-related New Year’s resolution to make is lowering your Annual Percentage Rate (APR). Keeping track of this metric is a great tool to reduce the amount of interest you pay on various loans and outstanding balances.
“Debt compounds because you pay interest on your interest so your top resolutions should be to reduce your balance and lower your APR,” says Mark Chen, founder and CEO of BillSmart. And, according to him, lowering your APR is something that is absolutely under your control.
“You can call your credit card company and in our experience, they’re willing to lower your APR by 5% on average. If you qualify, you can sign up for a balance transfer card and lower your APR to zero.”
Once you’ve done that, it’s time to attack your balance. “If you talk to your credit card company, we’ve found that you can get some of your past interest and fees refunded,” adds Chen. Then, it’s all about saving money and paying off your balance.
Pay more than minimum payments
“A great example of a New Year’s debt resolution is paying more than the minimum payment each month,” suggests Christopher Morgan, CEO at Credit Help Info.
“By paying more than the minimum amount monthly, you pay off your debts faster and minimize the amount you pay in interest. So it’s a great idea to set your payments as much as you can realistically afford. This will help you enormously in the long run regarding your financial health.”
Avoiding reckless spending will help you save cash and put it towards those monthly payments. “While this may seem like a no-brainer, it remains a top resolution for most people. You must learn to live within your means if you hope to pay off your debts. Put off gratification in favor of securing your financial future,” says Morgan.
Commonly Asked Questions
What are 3 tips on getting out of debt?
Find painless ways to reduce spending. Make an audit of monthly automatic payments such as subscriptions, and you are bound to find services that you barely use but keep paying for. Meal plan instead of going out to eat. Use online coupons or cashback platforms whenever you shop. Swap the gym for home workouts. Decide which expenses truly add value to your life and are important to you, and which ones you care about less – then, ditch the latter in favor of cheaper alternatives. For example, if you get manicures on a regular basis, you could buy the products needed to do it yourself at home and save cash over time. If you barely watch cable, you can replace it with your Netflix membership.
Use tried-and-tested debt-reduction tactics such as the snowball method to pay down your debt. Here’s how it works, according to Ramsey Solutions: Start by saving $1,000 for an emergency fund. Once that’s done, don’t touch it. Then, list your debts from smallest to largest. Attack the smallest debt aggressively while making minimum payments on the other one. Once you pay off the smallest debt, take that payment and apply it to the next smallest one.
Get resourceful about increasing your income. From selling things you don’t need to asking for a raise at work, there are ways to earn extra money that you might have not even considered. Or you could even get a side hustle or part-time job.
What resolutions can you make for 2022 to help you with money or finances?
Nurturing your credit score is a good financial resolution you can make in 2022. By reducing your reliance on credit, making payments on time and paying more than the minimum monthly amount due on your bills, you’ll improve your score. And avoid opening new credit cards at all costs.
Refinancing is another great choice. Make a New Year’s resolution to strategically refinance some loans and reduce the amount of interest that you pay on debt. From looking into refinancing alternatives for your student loans to consolidating credit card debt, research your options to choose the right one for you.
Work on your money mindset. The habits that got you in debt are not the habits that will get you out of it. Are there beliefs about yourself, your earning potential, or your ability to manage money that are keeping you stuck? This may sound less tangible than New Year’s resolutions that include practical steps, but addressing your thoughts and reframing them is a resolution that can make a huge difference for your bank account.