Thrifty Thinking: Getting Debt Under Control in 2014

GreenPath Debt Solutions, a nationwide, non-profit credit counseling and education organization, has come up with a list of ways to work your way out of debt in the New Year.

Plan Your Finances – This is an important first step to take in the New Year. An active financial plan is a tool that helps reduce spending and increase savings. “You shouldn’t simply be content with having money left over in your checking account, at the end of each month,” said Flores. Developing a plan will allow more financial freedom and enable you to get through financial emergencies.

Create a Budget - A budget forces you to get your spending under control, and to “live below your means,” which is exactly what you’ll need to do to start eliminating your debt. Making little adjustments to your lifestyle can add up to big savings. “Be sure to give yourself a bit of breathing room in your budget for unexpected expenses,” said Flores.

Prioritize Your Debts – “Debts that take first priority are the ones directly related to your ability to survive, such as mortgages or auto loans,” said Flores. “If you don’t pay these loans, you can face foreclosure or repossession.”  Flores recommends prioritizing payments into three categories: high priority (housing, child support, utilities, car loans); medium priority (personal secured loans, student loans, home improvement loans); and low priority (loans for household goods, credit cards, doctor’s bills).

Estimate Available Income  – Income can be a weekly paycheck, pensions, public assistance and investments. After you subtract taxes and other deductions from your total income, you will have your available income that you can work with each month.

Check Your Spending - Identify your past spending patterns by reviewing cancelled checks, receipts, and charge statements, for the past two to three months.Place expenses in "fixed" or "flexible” categories. Fixed expenses occur at specific times and rarely change (car note or mortgage). Flexible expenses fluctuate from month to month, and may possibly be altered to balance the plan (credit card bills, electric bill).

Use Cash for New Purchases - Unless you pay off the entire balance every month, you are probably paying interest on new purchases from the date of the purchase. If you stop using your credit cards all together, you will be able to reduce your debt more quickly. Because of compounded daily interest, it is far better to use cash for the things you need and adjust your budget to accommodate those expenses, rather than to use credit cards and then struggle to send large payments.

Review Your Plan - You should review your plan about every two to three months. Do not be surprised if, in the beginning, actual expenses are quite different from what you initially listed. Your plan will become more realistic as you continue the process.

Planning ahead early in the New Year can set you on a path to being debt-free in 2014.

For more information on GreenPath, or to receive a free counseling session and budget plan, log on to www.greenpath.org or call (866) 648-8122. Keep up with GreenPath Debt Solutions on social media at www.facebook.com/greenpathdebt and www.twitter.com/greenpathdebt.