6 Steps to Kicking Your Debt in the New Year
It’s a new year — and what better way to start fresh than by finally kicking your debt to the curb? If your credit cards, loans or lingering balances have been weighing you down for years, now’s the time to reset, refocus and get serious about reclaiming your financial freedom.
Here are six steps for tackling your debt head-on in the new year.
1. Know what you owe
The first step in any debt payoff journey is to get brutally honest about your numbers:
Make a complete list of your debts, including all credit cards, student loans, car loans, personal loans, medical bills and more.
Note the balance, minimum payment amount and interest rate of each.
Don’t forget about any buy-now-pay-later balances or old accounts you’ve been avoiding.
Why it works: Knowing where you stand helps you build a realistic plan and reduces the anxiety that comes with uncertainty.
2. Choose a payoff strategy that fits your style
There are two main methods when it comes to paying off multiple debts. Each method has its benefits and disadvantages; choose the one that best suits your personality and lifestyle.
Avalanche method. Pay off the debt with the highest interest rate first while making minimum payments on the rest. This saves you the most money in the long run.
Snowball method. Pay off the smallest balance amount first to build momentum, then move on to the second-smallest. Quick wins will keep you motivated, but you’ll be paying more interest overall.
3. Cut out unnecessary spending
There’s no need to become a monk, but cutting back on unnecessary expenses for a few months can give you a serious head-start on your goals. You can start by canceling unused subscriptions or memberships and skipping the pricey lattes and takeout meals. It’s also a good idea to try a no-spend challenge for a day or two, or a full weekend.
What to remember: This doesn’t need to be a forever commitment. It’s a short-term sacrifice for a long-term payoff.
4. Use “extra money” wisely
Tax refunds, holiday bonuses and even birthday checks from Grandma can become powerful tools in your debt payoff journey. Instead of spending these small windfalls, apply them directly to your highest-interest debt — even a $200 lump sum can knock down a balance and save you interest down the line. You can also consider setting up a “debt snowflake” system in which every unexpected dollar (cash-back rewards, rebates, side hustle income) goes toward debt.
5. Consider a balance transfer or refinance
If high interest is keeping you stuck, there are steps you can take to reduce it.
First, consider a balance transfer credit card. These cards allow you to transfer a credit card balance to a new 0% interest card. The only catch is that the zero-interest feature will come to an end after an introductory period of 12-18 months, so be sure to pay it off in time. Be wary of transfer fees, too.
Another option is a debt consolidation loan. Here, you’ll roll multiple debts into a single, lower-interest monthly payment, such as a personal loan. This makes your debts easier to manage and helps you save on interest costs, as well.
It’s important to note that these options should only be considered if you’re disciplined enough not to rack up additional debt with your new credit.
6. Automate, track and celebrate
Consistency is key. Automate your minimum payments so you never miss one, and set up extra payments for your top-priority debt. Set aside time every month to review your progress and verify that you’re still on track.
It’s also a good idea to celebrate milestones — even the small ones! Every $500 or $1,000 knocked off is a win that’s worth recognizing.
Make this the year you stop just managing your debt — and start crushing it.