It’s a brand new year and that means many of us are planning on paying down debt. Following a difficult summer with COVID-19, many are hoping to get back on track with their finances.

Many Americans took on additional debt during the COVID-19 pandemic. Working from home and limited stimulus checks altered Americans’ pocketbooks in unique ways.

If you’re trying to start the new year right, let’s talk about tackling your debts. Make smarter decisions to pay off your debt quickly and effectively.

Figuring Out How Much You Owe

Before you even make a payment to pay off your debt, sit down and figure out how much you owe.

Knowing what you’re aiming at is important. Knowing your total debt amount lets you create a plan for paying your bills. Because your monthly budget includes paying down debt, this step is crucial to creating a realistic plan.

Create a spreadsheet or database of all your debts. That includes who the lender is, how much you owe, and the interest rates for those debts. You’ll also incorporate some information from your budget around how much money you can afford to spend each month paying down your debts.

We’ve covered how debt plays into your larger financial plan with different strategies. This includes the snowball method, popularized by Dave Ramsey. It is one of the most popular debt repayment strategies and focuses on paying off the lowest balance debt first.

Having a living document of your goal lets you focus on your journey and makes it seem more workable.

As part of your debt planning, you may also want to peak at your credit report. You’re likely aware of all your debt. But getting your finances in order may also involve seeing what shows up on your report. If there are any irregularities, you’ll need to find time to correct them.

How is Your Financial Health?

Come Up With a Plan

You’ll need to focus on things you can do every day to pay down your debt.

You can do this by first determining how much money you can set aside to pay off your debt each month. Right now, you’re likely making the minimum payments or sticking with a schedule. But is this really the total amount you can dedicate to paying off your debt each month?

It could be more or less than what you’re currently contributing.

Next, decide what type of debt repayment strategy you’d like to use. We mentioned the debt snowball method above. But there are also debt repayment calculators. They help you find the optimal repayment plan to save you money on interest payments long-term.

The snowball method involves paying off your smallest debt balances first. This may not optimize your interest payments over the life of the loan. But it can help you feel like you’re making progress towards your goals and encourage you to keep the momentum!

This usually means paying off a credit card first. Credit card debt often carries steep interest rates and can compound quickly if you’re not careful. By contrast, they’re not used often for big purchases so you likely have the smallest balance on these cards.

You’ll focus on putting all of your energy into paying this debt off first and shift to minimum payments on the others. After your credit card is paid off, you may focus on personal loans or student loans.

At this point, you can also look to other areas of your budget for ways to trim the fat. You could plan to eat out 1 fewer times each month or reduce your streaming services by 1 to have a little extra cash.

These small budget cuts may seem silly. But even a few dollars extra toward paying off a debt can be huge.

Break your debt repayment into smaller tasks that are manageable. Trying to pay all your debts off at once is daunting. Start by focusing on one or two debts and grow from there. Keep track of your balances and interest rates in your spreadsheet as you make progress.

Staying On Track

Coming up with a plan to pay down your debt feels great. It makes you feel like you’re finally making progress to being debt free.

However, having a plan and actually executing it are two very different things.

We recommend using your spreadsheet or a debt tracking app to keep track of your debts and progress. They may be slow to move, but you can keep an eye on how fast you’re paying down your debt.

We all have off months too. Sometimes an emergency fund isn’t replenished fast enough before another car tire needs replacing! Or you have to dig into your pockets to pay for daycare unexpectedly.

These can slow your debt strategies if you miss a payment or only pay the minimum.

You may find that having mini penalties for yourself may get you moving again. These could be restricting your coffee budget or going out to eat even less. Tangible budget penalties could keep a fire going to make sure your debt stays a priority.

It’s Not All That Matters

Debt sucks. We know! We’ve written about the stress that comes from having too much debt many times in the past.

But your debt shouldn’t define you. As you make progress, don’t be afraid to treat yourself. You could go out for a treat or buy a new video game as a reward. Having milestones in your budget to help you feel motivated are important.

That extra cash may make a dent in your debt, but remembering to live your life is also important!

Find What Works for You

We’ve noted before that there’s no perfect debt repayment strategy. While some may shave off a few weeks or months from your payment time, the most important thing you can do is simply paying it back.

Don’t be afraid to experiment with different debt repayment methods over the coming months. Find ones that work well for your family and your individual habits.

Just because one method doesn’t seem to work doesn’t mean that you’re hopeless at paying off your debt. It just means you haven’t found the strategy that works best for you yet.

Remember, break your debts into chunks and find small meaningful ways to pay them off.