With the new year upon us, many of us are looking at our current habits, considering lifestyle changes, and settling in on our New Year’s resolutions for 2022.
It seems like different trends come up every year. Still, you can always count on the big three: get in shape, improve relationships, and financial resolutions like getting out of debt in the new year.
Are you rolling into the new year swamped with debt?
In this article, you’ll learn how to be debt-free in 2022. We’ll share some simple tips to organize your credit cards and loans along with methods to consider for paying down your debt.
The first step to becoming debt-free is assessing your entire financial situation.
Whether it’s credit cards, personal loans, student debt, a mortgage, or anything in between–if you don’t know where your money goes, you can’t plan for a better future.
Here’s are your steps to plan for the long run.
Write down all of your debts.
The best way to understand your personal finances is to write them down. List out credit card debt and other loans. This isn’t a full 2022 budget, but rather an overview specifically focused on what you owe.
You’ll be shuffling the accounts around shortly, so your best bet will be to do this on your computer, ideally in an excel file or Google Sheet.
Now that you’ve listed your debts, it’s time to prioritize. The order in which you tackle your accounts will largely come down to your debt situation and personal goals.
Let’s look at three particular situations. First, see which category best describes you. Then, consider the suggested approach to resolving debt.
Scenario 1: Current and able to pay extra
This one is for you if you are current on your accounts, have an emergency fund in your savings accounts, and can pay more than your minimum monthly payments.
Say you want to make progress in resolving your debt more quickly and efficiently. Wonderful! It will be best to prioritize based on the interest rate to save the most money possible.
Prioritizing your debt this way is known as the avalanche method.
You put everything you can toward the account with the highest interest rate regardless of the balance. Meanwhile, you only make your minimum payments on the other accounts. Give yourself a high five once you’ve completely paid off the account with the highest interest rate. It’s so important to celebrate those wins!
Next, you take everything you were paying on it and apply all that to the debt with the next highest rate, and so on.
Scenario 2: Current, but just barely
If you are current on debt but barely so and need to make a change, you may benefit from paying off debt with the smallest balances first.
Prioritizing in this way is known as the snowball method.
You’ll list all debt from smallest to largest ignoring the interest rates. You will make minimum payments of all listed debt except the smallest. You’re going to throw more money at that one than any others.
Work a side hustle or overtime, sell items from around the house, ask for a salary increase. Do whatever you can to raise some cash. Then, put that “extra” money toward the account with the smallest balance.
Once that’s paid off, take all you were paying toward the first account and put it toward the next one on the list.
The snowball method is similar to the avalanche method because it focuses on making large strides toward debt freedom rather than taking small steps. However, you tend to see progress faster when you work from smallest to largest. Seeing wins early on is incredibly motivating and helps you maintain your dedication.
Scenario 3: Behind on accounts, the struggle is real
If you are behind on debt, don’t despair! You’ve already taken a step in the right direction by resolving to get out of debt in 2022.
When you’re behind on your debts, you’ll want to consider the above snowball method. However, if that proves out of reach, you may find it necessary to get professional help.
You’ve got a bit of a hill to climb to make your snowball, but depending on just how far delinquent your accounts have fallen, it may be solvable on your own.
Suppose your income won’t support paying off debt that has fallen behind and grown due to late fees and wild interest rates. In that case, it’s time to consider professional help.
Professional help may come in a few different forms, such as a debt management plan or through debt settlement, ideally with the assistance of a debt relief attorney.
National Legal Center is a consumer rights law firm committed to helping good people overcome bad debt. If you’re behind on debt going into the new year, request a free consultation to see if a debt settlement attorney can help you put your debt behind you once and for all.
Review your budget
Now that you’ve prioritized your accounts and have a plan of how to pay off debt in 2022, it’s time to dive into the details.
It’s crucial that you know exactly what you can afford to pay each month toward debt and that your debt repayment plan is achievable. You can only do this by understanding what is coming in and what is going out.
Having that knowledge is a vital step toward debt freedom in 2022.
Review and update your budget at the turn of the year. This annual check-in will allow you to make sure that your budget reflects your priorities, especially if you’ve made a new financial resolution.
During this review, you should:
- update your income;
- add any new expenses;
- calculate your net worth;
- see what’s changed from last year;
- identify expenses you’re willing to cut.
Use this as an opportunity for reflection on your spending habits and consider making adjustments.
Don’t have a budget?
If you don’t have a budget, now’s the time!
A budget is a plan for how to spend your money. It’s a list of the money available to you each month divided up into categories, like debt repayment or groceries. Once you’ve established your budget, you can see where you might need to make some adjustments and be more mindful of how and why you’re spending. A household may benefit from a family-level budget. This way, everyone involved understands the household’s financial goals for the new year and expectations for each person.
How to Save Money in 2022
Once you’ve created your budget, you can begin to identify opportunities to save money each month. You might find more ways than you expect to lower expenses and resolve debt faster.
In a time of unyielding inflation, it can be hard to cut expenses enough to save even a few hundred dollars each month. However, several monthly expenses are good to look at for spending less in the long run.
Cable services are generally far more expensive than they need to be. So instead, consider turning to streaming services like Netflix, Disney Plus, or Hulu. There might be a feeling of sacrifice here, but the chances are good that you’ll find something new and enjoyable to watch.
No matter the type, insurance is a big expense.
You might be able to save some money by considering all of your options carefully before renewing old plans or signing up for new ones. Speak with an insurance agent and share the specifics about your situation.
To dehumanize the whole process, insurance companies have an “appetite” for different risk profiles (i.e., people). So you might find an opportunity for savings without even reducing your coverage. Better for you to have more money in your savings account than on your insurance bill.
Eating out can quickly destroy a budget. But, when you’re trying to cut costs, this is a big one.
The best way to minimize the sacrifice of reducing how often you eat out is by preparing good food at home! Pick up a cookbook from the library or scour the internet for low-cost meals. Make an adventure out of learning to cook on a budget in the new year!
Impulse purchases are one of the most frustrating ways to lose money because it’s hard to figure out where the money is going. Sometimes we don’t have any idea that we are spending a significant amount of money on a certain item or purchase over the past few weeks. Ahem, coffee.
If you stick to a budget and include an item, it’s no longer an impulse buy. There’s nothing wrong with any particular budget item. Just make sure your purchases are intentional and not impulsive.
How to Increase Your Income in 2022
Whether you’re looking for a traditional job or some way to make money on the side, getting creative with your options doesn’t have to be difficult.
There are more opportunities out there than ever to make some extra cash.
Consider some of these options:
- Lyft, Uber, or Doordash
- ThredUp (sell old clothes)
- Restaurant jobs (bus tables, wash dishes)
- Mechanical Turk work on Amazon
- Deliver food with DoorDash
- Freelance on Upwork or Fiverr
Use the extra money you make to pay off debt in 2022.
Make your credit card debt easier to pay off.
If you need help with debt, there are options.
We’ll review a few of the more common approaches to resolving credit card debt, with and without an attorney.
Debt Management Plans
Debt management plans (DMPs) can be an effective debt relief option in the right situation. On this service, a non-profit credit counseling agency makes arrangements to reduce the interest rates on your credit cards. You make one payment each month to the credit counseling agency. From there, they make payments to your creditors on your behalf.
In many ways, credit counseling agencies provide a similar service to debt consolidation. The difference is that it does not require a good credit score to qualify for the personal loan used in a consolidation.
A debt management plan can be an effective strategy for someone who needs a helping hand. For example, if you are current on your credit card payments but want to see more progress more quickly, a DMP can be an excellent way to go.
Complete the form on this page to request a free consultation to discuss your situation with our debt relief law firm. If our services aren’t the right fit for you, we’ll be glad to connect you with a reputable credit counselor.
Debt Settlement Attorney
Suppose you are behind on your accounts or need a bit more help than you can get through a debt management plan. In that case, you should speak with a debt settlement lawyer.
Debt relief attorneys have the knowledge and skills to deal with delinquent debt, collection accounts, creditor lawsuits, and more.
A debt relief attorney can help you determine if debt settlement is right for you. If so, they will also guide you through the entire debt settlement process.
Contact us today at 1-800-728-5285 or complete the form on this page to begin pursuing debt settlement with the oversight of a licensed attorney.
If debt settlement doesn’t seem like the right debt relief option, you may decide to consider filing for bankruptcy. Though usually a last resort, bankruptcy is an option to consider when you need drastic help with your financial situation.
Filing bankruptcy does have drawbacks, but so do all debt relief options. We suggest speaking with a bankruptcy attorney to understand the option fully.
Not all attorneys at National Legal Center practice bankruptcy, but some do. Give us a call to discuss your situation. If we can’t help you, we’ll do our best to point you in the right direction.
Other Financial Resolutions for 2022
Maybe you aren’t resolving to pay off your debt in 2022 but want to make some sort of financial resolution for the new year. Here are some other financial resolutions to consider in the new year, with resources to get you headed in the right direction.
Increase retirement contributions
Gain control of your credit report
Establish an emergency fund
Fund a Roth IRA
Learn about investments
Become a pro-budgeter
Whatever your financial resolution may be, the entire team at National Legal Center wishes you success, wealth, and health in the New Year!