Total U.S. consumer debt reached a record $2.75 trillion in 2012, according to the Federal Reserve. Since your motivational level is high with the new year, why not take the time to tackle your debt? Choose to be one less person that contributes to the nation’s alarming consumer debt statistics.
The trick to successful debt relief is to find the method that makes the most sense for you. Not every debt relief idea is suitable for everyone and there is no one-size-fits-all solution. Your bank account may be the tool to help automate your way out of debt. There are several key steps that will be necessary for effective debt relief. Here is an overview of where you may need to start:
Sort the numbers
You need to know where you stand financially. If you are just guessing how much debt you have rather than knowing exactly what you owe, you can be in bigger trouble than you know. Take time to sit with all of your creditor’s statements, bank statements, paystubs, and other income information. You’ll need to confirm how much money you are bringing in and how much will need to go out each month for your basic living needs. Make a list of your creditors, their balance due, the interest rates, and the terms for repayment. Notate any past due debts that are affect your credit.
Consider personal financial management tools to help keep a tab on your finances.
Prioritize your debts
It is advisable to work out a plan for debt repayment that allows you to keep up with your monthly bills while still allocating cash towards those debts that have gone past due. Many financial experts recommend paying off your debts with the highest interest rates first while others believe that eradicating the small debts helps free up extra cash in the long run. This is a choice you will need to make on your own based on your income and financial situation.
Commit to a plan
After figuring out your financial situation, you should know what may be ‘left over’ in cash to go to debt relief. If there is no money remaining after monthly obligations are met, you’ll need to start slashing your spending and making sacrifices if you wish to get serious about debt freedom. You will need to then allocate the remaining cash towards your debt payments. If you are making regular monthly payments, you can use a portion of your income as an additional amount of money paid to the creditor until the debt is paid off.
Automation can be the answer
If you have your paycheck direct deposited into your bank account, you already realize the convenience of having your money automated. The same can be true in debt relief.
With online bill pay, you can set up the automated payments to your creditors to ensure the extra cash you have allocated is actually going to go to your creditor on a regular basis. This can help provide the discipline some people need to keep money going in the right places and resist temptation.
If you do not have enough cash in the bank for the automated bill payment, you’ll incur the fees. This can keep you motivated to staying on track and really managing your money. If you are not using bill pay services, your creditor may agree to take automated payments from your bank account in order to keep your account in good standing. Your creditor may provide you with paperwork to complete to approve the automated withdrawal of a set amount each month. Again, you’ll need to be sure the money is in the account to cover the withdrawal.
Another way to make automation work in your favor is to redirect your paycheck into a savings account each time you get paid. While battling your debts, you should also be concerned with savings. Even if you are setting up an automatic bank deposit of $20 a check into a separate savings account, you have started the process. As money in the account grows, you are likely to stay motivated towards your financial goals.
The most important lesson to be learned throughout the debt relief process is to not let history repeat itself. As you finalize your debts on different accounts, you can move more money previously used for payments into your savings accounts. It can be difficult to stick with the debt process especially when living from paycheck to paycheck. However, if you commit to your plan and continue to make sacrifices, you will not only end up with zero debts to creditors, you will also continue to establish a well-funded savings account for future emergencies.