These smart and easy strategies can get you back in the black before you know it.
One in eight Americans don’t think they’ll ever pay off what they owe, according to a survey by CreditCards.com.
But it’s a new year and a new balance sheet. And the seven steps here can help you put hundreds more towards your bills every month—while still living the kind of life you want.
Can you taste the freedom?
1) Know What You Owe
It may sound easy, but this can be the hardest part, says Gail Cunningham, spokesperson for the National Foundation of Credit Counseling. “A disturbing number of people come to our offices with grocery bags filled with bills,” she adds.
After you’ve tallied up your total debt, make a “cash-flow calendar” to track how much money is going in and out of your accounts, and when, Cunningham says. When do you get your paycheck, and how much do you get net taxes and benefits? When is each bill due every month, and what is the typical cost? How much do you spend on each of your other expenses, and when?
The more you want to procrastinate on this step, the more you need to do it.
“People resist doing this,” Cunningham says. “I think that’s because they’re afraid of what they’ll find. There’s nothing like seeing your spending staring back at you. That could force a behavioral change.”
2) Follow the 10×10 Rule
If you want to create a debt-repayment plan you can follow, you need to set reasonable and sustainable goals. Curb rather than cut your spending, advises Kevin R. Weeks, president of the Association of Independent Consumer Credit Counseling Agencies.
“Just like a New Year’s resolution to get in shape, it’s very difficult to go cold turkey and say, ‘I’m going to do all this, this week, or today,’” Weeks says. “People bite off more than they can chew, with good intentions.”
Start slowly by following Cunningham’s 10×10 rule: “If you could shave $10 off 10 disposable spending accounts, you’d never miss it, never feel it, never feel deprived—and you’d have another $100 in your pocket,” she says. “Little money adds up to big money.”
3) Spend Cash
Researchers have found that when people shop with credit cards and gift certificates, they are more likely to make impulse purchases on luxury items because they feel like they’re using “play” money. If that sounds like you, cut up the plastic.
And force yourself to feel the pain associated with spending real money by going on a cash-only diet.
“People who live on a cash basis typically save 20% over their previous spending, without feeling deprived,” Cunningham says. “It’s because using cash creates a heightened sense of awareness. You are more contemplative, and you realize you’re going to have to pay for things with hard-earned cash. Something clicks in that allows you to feel better about not buying the item.”
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