Resolutions 2013: Getting Rid of Debt

What's Hot

2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

7 Dumb and Costly Moves Homebuyers MakeBorrow

This Free Software Brings Old Laptops Back to LifeMore

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Beware These 12 Common Money MistakesCredit & Debt

21 Restaurants Offering Free Food Right NowSaving Money

17 Ways to Have More Fun for Less MoneySave

House Hunters: Beware of These 6 Mortgage MistakesBorrow

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

The True Cost of Bad CreditCredit & Debt

10 Companies With the Best 401(k) PlansGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

6 Stores With Awesome Reward ProgramsFamily

6 Ways to Save More at Lowe’s and The Home DepotSave

6 Healthful Treats for Your DogFamily

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

Where to Sell Your Stuff for Top DollarAround The House

8 Ways to Get a Good Price on a Shiny New AutoCars

Ask Stacy: How Do I Start Over?Credit & Debt

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

30 Awesome Things to Do in RetirementCollege

14 Super Smart Ways to Save on TravelSave

The Rich Prefer Modest Cars — Should You Join Them?Cars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

Planning to pay off your debts this year? Here's how to keep your New Year's resolutions on track and become financially free.

With the average credit card debt nearing $5,000, according to TransUnion, it’s no surprise that paying off debts is a popular New Year’s resolution.

If you vowed to pay off your debts and start living a more balanced financial life this year, we’ve got you covered. In the video below, Money Talks News founder Stacy Johnson has a plan for tackling your debts one by one. Check it out, read on, and you’ll have more than a “snowball’s chance” of getting out of debt.

Now, let’s hash out the details and get you on your way to financial freedom.

1. Make a list

Start by gathering all your bills – current credit card statements, car loan and mortgage statements: all documentation, online or off, that shows what you owe.  Can’t find a balance? Call the lender and ask for it.

Now put it all in one place: list all your debts, along with minimum payments.

2. Pick a debt to destroy

Once you have a list of your debts, pick one to focus on. There are two schools of thought on which to begin with – the debt with the highest interest rate, or the one with smallest balance.

Mathematically, paying the debt with the highest interest rate makes the most sense. Motivationally, however, focusing on the smallest debts provides quick victories, which keeps you going.

Whatever method you decide on, pick a debt and start destroying it. Pay the minimum on all other debts, but as much as you can on your target. In his book Life or Debt, Stacy recommends setting aside 10 percent of your monthly income as a “debt destroyer.”

Where will you find the extra money to create a debt destroyer? By tracking your expenses and squeezing every possible penny from your budget. Use a website like PowerWallet to automatically track your expenses – see yesterday’s post, Ask Stacy: What’s the Single Best Way to Pay Down Debt? for more.

3. Start snowballing

After you pay off the first debt, move on to the next on your list.  While paying the minimum on your other bills, for debt 2, send in the minimum + your “debt destroyer” payment + the old payment from debt 1. After debt 2 is gone, hit debt 3: send in the minimum + your “debt destroyer” + the old payment from debts 1 and 2.

Adding in old debt payments is called snowballing, and it’s a great way to pay off debts. Since you’re used to doing without that money, it’s easy to use it to help destroy all the debts on your list.

If you can come up with a “debt destroyer” equal to 10 percent of your income, by using snowballing, you can pay off every debt you have – including a mortgage – in as little as 10 years.

4. Finding the money

Don’t think you have any extra money to create a debt destroyer? Once you start tracking your expenses, you might be surprised.

For example, in 19 Tips to Save on Entertainment we talked about cutting your cable bill (average of $75 a month) and switching to a Netflix subscription ($7.99 a month). That one move will net you $67 a month you could use to destroy debt.

Planning on getting in shape this year? Drop your gym membership and take up running, or rent exercise videos from the library to do at home. In 10 Painless Ways to Save $1,000, we said the average gym membership costs $42 a month. Put that toward your debt for six months, and you’ll have $252 paid off.

Have a pet? There are some easy ways to save there too. In 10 Ways to Save on Pets, Renee Morad explained professional grooming for her miniature goldendoodle costs about $70 a session. By learning to groom her pet herself, she can skip this expense entirely. Do the same, and you’ve got an extra $70 a month to put toward your debt.

The bottom line – by creating a “debt destroyer” and snowballing your payments, you’ll stay motivated and get your debts paid off. And if you can’t find the money, check our site. We’ve got tons of ideas to help you find a few more bucks without sacrificing your quality of life.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: Considering a Fixer-Upper? 15 Ways to Avoid a Money Pit

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 2,091 more deals!