Resolutions 2013: Getting Rid of Debt

Photo (cc) by Alan Cleaver

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.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
Watch This: Organize Your Home With Dollar Tree Products
Watch This: Organize Your Home With Dollar Tree Products

Here’s how to organize every corner of your home using only items from a dollar store.

How to Get Rid of 6 Hard-to-Sell Things
How to Get Rid of 6 Hard-to-Sell Things

Find out where to sell, donate or recycle items — and feel good about it.

15 Ways Retirees Can Make Their Savings Last Longer
15 Ways Retirees Can Make Their Savings Last Longer

Study these strategies to make your golden years gleam.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

33 Home Upgrades That Cost Less Than $100
33 Home Upgrades That Cost Less Than $100

A little money goes a long way with these imaginative projects. You can do most of them yourself.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

14 Things That Are ‘Free’ With Medicare
14 Things That Are ‘Free’ With Medicare

These services could save you money and help prevent costly health problems.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

10 Things You Should Never Do With Bleach
10 Things You Should Never Do With Bleach

Does the pandemic have you reaching for bleach more than ever before? Learn the ins and outs of using this powerful disinfectant.

15 Amazon Purchases That We Are Loving Right Now
15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

11 Things You Should Never Buy Without a Coupon
11 Things You Should Never Buy Without a Coupon

With just a little planning, you can save money on numerous everyday purchases.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.