If holiday spending has put your financial well-being at risk, don’t despair. Follow these steps to get back on track in the new year.
Credit card debt from holiday shopping is something many of us dread having to face in the new year, as statements arriving in the mail only add to the stress of juggling existing expenses. Before you spend another sleepless night wondering how to get back on track, consider following these steps to pay down debt and improve your financial well-being.
Using current mortgage, loan, bank/credit union, and credit card statements, prepare a list of all debt balances and interest rates. You’ll also need an up-to-date monthly household budget that includes everything you spend money on, from your mortgage/rent payment to that cup of coffee on the way to work.
If you don’t have a budget, it’s important to create one. Fidelity Investments’ Understanding Your Spending can help you become the CEO of your money.
Paying off debt works best when you can maximize the amount of money you have to work with. Here are some ways you can optimize your income for paying off debt:
When it comes to paying off debt, it helps to follow a proven approach. While making at least the minimum payments each month, increase your payment on the credit card with the highest percentage of interest. Once that balance is zero, boost your payment on the card with the next highest interest rate, and so on, until all your credit cards are paid off.
After you eliminate outstanding balances on your credit cards, work on paying down loan balances. Focus on private student loans first, as these typically have higher interest rates than government loans. Then, increase the payments on your government student loan, car loan, and mortgage.
Once you have your debt under control, it’s important to maintain good spending habits. Fidelity’s 50/15/5 rule of thumb offers helpful guidelines for overall spending and saving that can help you avoid falling back into the debt trap.
Paying off debt frees up income that can help you achieve other financial goals, — such as establishing an emergency fund, preparing for retirement, sending a child to college, or taking your dream vacation. Put that money to work by increasing your contributions to the Retirement Savings Plan by at least one percent each year (and, as you eliminate debt, challenge yourself to increase contributions twice a year).
Not enrolled in the Retirement Savings Plan? Talk with your employer today about how to get started. If your employer does not offer the plan, ask them to contact the Board of Pensions at 800-773-7752 (800-PRESPLAN) for more information.
* Call to Health is available to employees and their spouses with medical coverage through the Board of Pensions; it is not available to members enrolled in Triple-S, GeoBlue, or the Medicare Supplement Plan.