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Post-Holiday Budgeting Tips: How to Pay Off Debt in the New Year

a couple budgeting .

Suffering from a holiday spending hangover? Next to losing weight, creating a budget is one of the most common New Year's goals. But just like dieting, actually sticking to that budget is a lot easier said than done.

In fact, weight loss and budgeting have a lot in common. It’s easy to set big goals - lose 50 pounds, pay off credit card debt - and then feel overwhelmed by the enormity of the task. If you want to lose weight, you need to chip away at those extra pounds one day at a time. The same goes for getting your budget back on track. If you want to pay off debt and build savings, then you need to make smart financial resolutions that you can stick to each day. Here are some helpful tips.

Be realistic about your spending.

The FTC’s Consumer Education website recommends you get started with your budget by listing your income from all sources. Next, list every single “fixed” payment you need to make each month, including rent or mortgage, utilities, insurance premiums, car payments and credit card minimums. Next, list “flexible” expenses that can vary, such as groceries, shopping and entertainment. Prioritize these expenses, analyze your spending patterns, and look for ways to cut back. For example, do you typically leave dinner to the last minute and grab a ready-made dinner from a local restaurant? Do you end up making impulse purchases when you go shopping? Small changes to your spending patterns can make a big difference in the long run.

List all your debts.

Whether you’re using an Excel spreadsheet or budgeting software, list all the debts you owe and the monthly interest charges on these debts. Next, consider your repayment goals. Do you want to pay off your student loans in the next three years? Is your dream to be credit card-debt free in one year? Taking into account interest, break down how much you realistically need to pay each month in order to meet your pay-off deadline. What if you added an extra $50 or $100 to your monthly payments? Noticing how small additions make an impact each month will keep you focused and motivated.

Pay off high-interest debts first.

Overspent during the holidays? Still carrying credit card balances each month? Prioritize your debt and tackle the highest interest debt first. Paying off the balance with the highest annual percentage interest rate typically results in the biggest lifetime savings. Once you’ve paid off one credit card, keep that monthly payment in your budget, but simply shift it to the next highest interest debt. You’ve already learned to live with a little less money each month, so keep focused on paying down your debts.

Work out a payment plan for major debt.

If you are struggling with significant credit card debt, paying the minimum each month on your debt won’t be sufficient to get you out of debt in a timely manner. In fact, paying the minimum each month can significantly stretch out your payment and prevent you from achieving financial savings goals while racking up some serious interest charges that only compound the problem. Depending on your credit score, one option is to transfer some of your balance to a 0% APR card, which will buy you more time to pay down the principle without adding onto the balance with interest.

Debt settlement is another option for pay-off. However, the Federal Trade Commission warns that most debt settlement programs are typically offered through for-profit companies and carry their own risks. A better option may be to seek help through credit counseling organizations that can advise you how to best manage your money and budget.

Small changes add up. Remember, $10 here or $20 there can add up quickly — either in the form of more credit card debt or stronger savings.

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