December is a great time for self-reflection. Many take this time to follow up with the New Year's resolutions they had made the year before, asking themselves if they accomplished what they had set their minds to.
Getting out of debt is a resolution often at the top of citizen's lists. To ensure that your community can follow through with this challenging – yet achievable – resolution, they need to be set up for success, which means having the right plan in place. Share the key steps listed below to steer them in the right direction.
1. Set SMART goals.
Use the SMART goal guidelines to properly set goals from the start. Read through this example and start thinking about your own goals. Revisit your goals after you go through steps two through six to make sure that they are right for your situation.Your goal must be SPECIFIC.
- I will increase my savings by cutting back on my daily spending.
Your goal must be MEASURABLE.
- I will make weekly deposits into my savings account and watch my balance go up.
Your goal must be ATTAINABLE.
- I can easily afford to save an extra $10 each week: I’ll stop buying coffee every morning.
Your goal must be REALISTIC.
- Instead of buying a coffee every morning, I can buy a travel mug and make my coffee at home.
Your goal must be TIMED.
- By the end of this year, I will have an extra $500 in my savings account.
2. Face Your Debt
Start listing your debts. Make a list and ensure that it’s up to date. Write down details about each entry, including the following:- Creditor
- Purpose and whether it was reasonable or not (e.g., student loan vs. emotional shopping spree)
- Priority classification (e.g., 1 = credit cards, 2 = personal loans, 3 = mortgage)
- Rate %
- Minimum monthly payment
- Balance
- Projected Payment
3. Prioritize and pay down your debt
- Decide who should be paid first. You might want to consider paying off the debt with the highest interest rate – usually store cards or finance companies.
- Plan to pay this creditor double the minimum monthly payment so that it gets paid off first.
- For all your other debts, keep making the minimum monthly payments until your priority debt is all paid.
- Follow this double-the-minimum plan until all your creditors are paid.
If you’re having trouble paying your creditors, contact them immediately. Explain why it’s difficult for you, and try to work out a plan that lowers your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector! Take action immediately.
4. Review your existing budget.
Everyone should have a spending plan, whether you have debt or not. Budgeting is a helpful tool to see where your money goes and where you can save. If you have debt, you really need to find ways of lowering your expenses. Go over your spending plan and try to trim some expenses. Whatever money you’re not spending can be used to pay back debt.If you don’t have a spending plan, make one. The Quickseries® 10-Step Spending Plan pocket guide has the information you need to create a successful budget. It also comes with handy log pages you can fill out.
5. Develop healthy spending habits.
Do some research and talk to your family and friends for tips on spending less and saving more. Incorporate these practices into your SMART goals. For example, you could:- Use coupons at grocery stores.
- Brown-bag your lunch to work instead of eating out.
- Use cash instead of credit cards.
- Do things yourself that you may be paying others to do (e.g., lawn care, car washes).
- Shop around for Internet providers, cell phone plans, etc.
- Not overextend yourself during the holidays or give extravagant gifts for birthdays.