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::January Edition::

Welcome to the January edition of Financial Friday, Oklahoma Money Matters' online personal finance question-and-answer forum. This month, we're answering a question about reducing debt in the new year. 

How can I create a realistic plan to effectively reduce and manage debt in the new year?

With the new year upon us, many of us start reflecting on our financial goals for the coming months. You're not alone if managing and reducing debt is on your resolutions list. Creating a realistic plan can give you peace of mind while you work toward your goal. Consider these tips to help you build a strategy for success:

Assess the current situation: Start by gathering all your debt information. List each debt, including credit cards, personal loans, student loans, and other liabilities. Note the balance, interest rate and minimum monthly payment for each. This may seem scary initially, but you'll be glad you did this when you start to see progress.

Create a budget: A well-structured spending plan is essential. Start by calculating your monthly income and tracking your expenses. Categorize your spending into fixed expenses (rent, utilities, groceries) and discretionary expenses (dining out, entertainment). Having it written out can help identify areas where you can cut back and reallocate those funds toward debt repayment. Every little bit helps. Our free budget calculator can help you get started.

Build an emergency fund: Unexpected expenses can derail even the most well-thought-out debt repayment plans. Start a small emergency fund to cover unforeseen costs. Aim for at least $1,000 initially, then gradually build it up to cover three to six months of essential living expenses. 

Be S.M.A.R.T. about your goals: Set Specific, Measurable, Achievable, Relevant, and Time-bound (SMART) goals for your debt reduction plan. For example, aim to pay off a specific debt by a certain date or reduce your total debt by a set percentage within the year. Clear goals provide direction and motivation.

Prioritize your debts: Not all debts are created equal. A strategy like the debt avalanche or debt snowball method can help you decide what to tackle first:

  • Debt Avalanche: Focus on paying off debts with the highest interest rates first, which can save you more money in interest over time.
  • Debt Snowball: Start with the smallest debt to build momentum and motivation by quickly eliminating smaller balances.

Automate where possible: Automate your debt payments to ensure consistency and avoid missed payments. Set up automatic transfers from your bank account to your creditors. This helps you stay disciplined and can prevent late fees.

Consider increasing your income: Explore ways to boost your income, such as taking on a part-time job, freelancing or selling items you no longer need. Direct any extra earnings toward your debt repayment plan while accelerating your progress.

Settle in for the long haul: Debt reduction is a marathon, not a sprint. Stay committed to your plan, celebrate small victories and adjust your strategy as needed. Review your progress regularly and adjust as necessary to stay on track.

Get help: If your debt feels overwhelming, don't hesitate to seek professional advice. Credit counseling agencies can help you create a debt management plan and negotiate with creditors for lower interest rates or payment terms. To find a nonprofit certified credit counselor, visit the National Foundation for Credit Counseling at https://www.nfcc.org/. 

Reducing and managing debt requires dedication, discipline and a clear plan. With some work, you can effectively tackle your debt and start the new year on a path toward financial freedom. For more information about paying off debt and managing your finances, check out our resources at OklahomaMoneyMatters.org.

If you have money-saving tips you'd like to share, email us at OklahomaMoneyMatters@ocap.org or visit Ask OKMM to submit a personal finance question for a future edition of Financial Friday.

Thanks for participating in Financial Friday. Remember, there is always time to take control of your financial future! 

 

The OKMM Team

Financial Friday is a service of Oklahoma Money Matters, the financial literacy initiative of the Oklahoma College Assistance Program, a division of the Oklahoma State Regents for Higher Education.

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