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After years of being in debt, Rachel Kramer Bussel concluded, “If I don’t take the initiative, I’ll be in debt for the rest of my life.” For Bussel, a freelance writer near Atlantic City, New Jersey, this meant cutting costs and channeling all available money towards paying off the principal.
“Starting to see things going in the right direction helped me strengthen it,” she says. “I felt that maybe there is a light at the end of the tunnel.” Bassel, whose debt consisted of credit cards, student loans and back taxes, finally paid off all of her debt, which at one point topped $100,000, in 2020.
Paying off debt is a common goal at the start of the new year. Holiday shopping bills and other year-end expenses are often due in January, and this year rising interest rates are making debt more and more expensive. Revolving debt, which includes credit card balances, continued to rise throughout 2022, increasing at an annualized rate of 10.4% as of October (latest available data), according to the Federal Reserve.
To attack your debt this month, try the following strategies:
Look back then forward
Elaine Grogan Luttrulle, a financial educator and consultant in Dublin, Ohio, says it’s helpful to think about how it came about before you make a plan to pay off debt. Was it pressure? Excitation? Habits? Find out what triggers led to this debt and sit with your emotions for a while,” she says.
“Let’s not beat ourselves up and focus on the solution,” she adds. If you skip this introspective step, she says, it will be hard for you to get going because it’s easy to get caught up in just feeling bad about your previous choices.
A list of all your debts, with their associated interest rates, will help you get organized and decide what to pay off first, says Lutrull. She suggests starting with the highest interest rate debt, also known as the debt avalanche method, but other people prefer to use the debt snowball method, where you start with the smallest debt first.
Then find money in your budget to redirect it towards paying off your debt. Lutrull says that if your student loan payments are on hold, you can use the money to pay off credit card debt, for example. You can also look for cheaper ways to hang out with friends, like hosting game nights or going on hikes.
Emma Johnson, founder of richysinglemommy.com, suggests reviewing all your bank and credit card statements to identify recurring expenses that you can cut immediately. Streaming services, gym memberships, and cable TV bills are popular targets. “Do a New Year’s Eve cleanup.” What can be configured? she asks.
Earn extra money
With budgets so tight with inflation, making extra money may be your best bet for finding cash to pay off debt. Cedric Nash, author of Why Should White Boys Have All the Wealth? and founder of the nonprofit Black Wealth Summit, says that in our high-tech world, options abound: “You can do a lot from the comfort of your living room. If you have technical skills, you can be a computer specialist, or if you’re good at math, tutors are paid over $100 an hour. Look at your skill set and then use it to handle some of your debt and increase your wealth.”
Nash, who lives in St. Petersburg, Florida, says his friends make a living from everything from DJing to hanging Christmas lights.
Consider Consolidating Your Debt
If you qualify for a credit card with an introductory 0% annual interest rate, then transferring your existing credit card debt to that card can give you more time to pay it off without charging additional interest, says Matt Elliott, a certified financial planner and founder of Pulse Financial Planning in Rochester, Minnesota. You may also consider getting a personal loan with a lower annual interest rate than your cards.
“If you have decent credit, this could be an opportunity to lower your interest rate to transfer the balance to a zero-interest credit card or lower-interest personal loan,” he says.
Create rewards and new traditions
Rewarding yourself as you reach milestones, like paying off your credit card, is an important element in staying motivated, Nash says. “No one likes to pay bills all the time, so we need a reward system.” It could mean a trip or a long-awaited purchase (as long as it doesn’t add to your debt).
To avoid debt during the year, Johnson suggests starting new traditions: for example, instead of gifts for Valentine’s Day, she writes love poems to order for her children. “It’s really important and they’re looking forward to it now. And it’s free.”
This article was written by NerdWallet and originally published by The Associated Press.