Whether you were in debt previously or holiday spending put you in the financial weeds, the new year is a good time to make a resolution to get out of debt—so you can start 2023 with a healthy mindset.
While past studies have found that individuals rarely keep to their resolutions, a newer survey from Bank of America showed that 41% of Americans achieved their 2022 resolutions, and 80% have set new goals for 2023. If you’re striving to join the ranks of successful resolution makers, here are some steps you can take to achieve a financially healthier life.
- Pay down your debt. The best way to tackle credit card debt is to pay off the highest interest rate loan first, which is a method called the debt avalanche. While this is the most recommended way, paying off your smallest debt first by using the debt snowball technique can give you quicker rewards—potentially providing much-needed motivation. If your debt is insurmountable, make an appointment with a credit counselor to learn more about enrolling in a debt management program, so that you can pay off your loans in three to five years with a manageable monthly payment.
- Build your savings. Ideally, you should put 80% of your monthly household income toward your expenses and 20% toward savings—for emergencies, for big projects, for retirement, etc. To save, however, you’ll want to create a budget you can stick to. There are plenty of budgeting apps you can try out, including Mint, YNAB, and Personal Capital.
- Get financially literate. One way to ensure you do better financially is to understand more about your finances. This means reading books and articles or taking courses in financial literacy. A credit counselor can be a great resource and will direct you to relevant literature, classes, and upcoming workshops.
- Automate payments. To ensure you don’t incur late fees or hits to your credit score for missed payments, automate payments toward your bills each month. This also cuts down on manual paper shuffling—you just need to keep to your budget.
Enroll in a Debt Management Plan
One monthly payment | lower interest rates | no more debt collector calls | improved credit score