Now that the holidays are over and 2019 has begun, many people are looking to fulfill their New Year’s resolutions. Maybe you made a promise to get on top of your outstanding debt and clear a path to financial freedom. If you have plans to become debt free in the coming year, look no further than these simple solutions.
Identify your debts
A good starting point is to identify what you currently owe. Create a list of all your debts and include the total amount due, the interest rates incurred and the minimum monthly payment required. This can include a range of bills from taxes to car loans and credit card balances.
Formulate a plan
Now that you have identified your specific debts it’s time to decide on a strategy. The types of debt and the amount owed will influence this plan. First, set a payment timeframe that is reasonable to your situation. Next, decide which debts to pay off first. List them in order from the highest interest rate to the lowest. Make the minimum payments on all your debts, then, use any extra money to pay down the debt with the highest interest rate.
Work with creditors
Contact your creditors to discuss your financial situation with them and ask if they would consider a lower interest rate on your debt. Some creditors will work with you to extend your payments over a longer period of time and reduce your minimum monthly payment.
Consolidate your bills
You may want to consider applying for a loan or line of credit to pay off multiple debts with high interest rates – called debt consolidation. This means you’ll only have one monthly payment rather than paying each of your debts individually. Often times, a consolidated loan has a lower interest rate with lower monthly payments than the bills you are already paying.
Plan for the future
Part of the reason we find ourselves falling into debt is because we haven’t planned for future financial burdens. From retirement to a rainy day fund, it is smart to start saving for the unexpected early on. One major debt many people will incur typically stems from post-secondary education costs.
In both the U.S. and Canada, student loan debt has steadily increased over the past decade.
The rise in tuition has been a burden for students as some are taking longer to repay loans, if they're able to repay them at all.
With the current state-of-affairs, parents are urged to help save for their children’s education as soon as possible. In Canada, Registered Education Savings Plans (RESPs) are a helpful way to invest in a child’s impending education and are offered through organizations like Children’s Education Funds, Inc. (CEFI). Furthermore, providers like CEFI are experienced in matching families with the correct type of RESP that fits their financial needs.
Whatever led you into debt in the first place, it is never too late to tackle your finances, and, with a little bit of work and a solid plan, you will be on your way to financial freedom in the new year.