6 Savvy Steps to Reduce Your Debt in 2015

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It’s January. The holidays are over and you’re afraid to try on those skinny jeans in your closet, but you’re even more afraid to open the credit card statements that are arriving in your mailbox. If you are facing the new year with debt, you are not alone. The average American has more than $15,600 in credit card debt.

According to the Blue Star Families 2014 Military Family Lifestyle Survey, more than a third of service members owe over $5,000 on their credit cards and 60% of military families feel stress about their financial situation.

2015 could very well be the year that you turn things around. 2015 could be the year that your family becomes debt-free.

6 Steps to Reduce Your Credit Card Debt in 2015

Here are 6 tips to help you reach your financial goal of being debt-free in 2015.

  1. Know Your Enemy– Get Your Head Out of the Sand

This is probably the hardest part of the whole endeavor. It’s almost impossible to make any kind of progress in paying off debt unless you know how much you owe. So it’s time to take stock of what you owe as well as the income you have coming in each month. Whether you use the back of an envelope to add up your debts or go for something a little higher-tech, the important thing is you must know where you stand, both with your debt and your income.

PowerPay Debt Elimination, created by the Utah State University Extension, is an online site that will allow you to track your debts and even see how different debt repayment scenarios will play out. You can create a spending plan (the nice word for “budget”) and they have all kinds of calculators and educational information. Last year they added an iPhone app.

ReadyForZero is another free online debt reduction tool (there are “plus” features that cost extra) that helps you decide which debts to pay, visualize progress and even set reminders and alerts. The plus features allow you to track your credit score and make payments. (Disclosure: I have written for these guys in the past.)

6 Easy Steps to Cut Your Credit Card Debt

It’s not enough to just know how much you owe– you also should take stock of all the income that’s coming into the household. And it makes sense at this point to come up with a spending plan so you can see where your money is going and have better control over it. The PowerPay site has a spending plan you can fill in or you can print this spending plan worksheet from SaveAndInvest.org.

  1. Tackle the Debt that Bothers You the Most

Some experts say to tackle the debt with the highest interest rate first. That way you get more bang for your buck because you end up paying less in interest. Others say to attack the smallest debt first, so you get a psychological boost from having paid something completely off.

I say do what makes the most sense to you. The last time my husband deployed and we had a bit more cash, we decided to pay off our SUV because our monthly car payment was so large. Even though our interest rate was relatively low, I felt like the huge payment was stifling us. Once we were out from under that monthly payment, we miraculously had a lot more cash freed up to pay off other debts.

  1. See If There’s Wiggle Room

Depending on when you incurred your debt, you may be able to reduce the interest rate under the provisions of the Servicemembers Civil Relief Act (SCRA). Under the “Six Percent Rule,” lenders must reduce interest rates to 6% on consumer and mortgage debt incurred before entry on active duty.

Even if the debt is of recent standing, it’s always worth calling your creditors to see if they will lower the interest rate. Some banks, like USAA, will lower your interest rate when you PCS or deploy.

Whatever you do, don’t simply ignore your bills– always call the creditor, even if you can’t make your payment on time and explain your situation.  

  1. Cut Back Anywhere You Can

Now is the time to cut back wherever you can. We used a PCS move to “unplug” (ditch the cable box) and now we stream TV shows, saving over $100 per month. Can you eat out less? Make coffee at home instead of buying Starbucks on the way to work? Get your hair or nails done less often? Switch to the less-fancypants shampoo brand? Maybe you can give someone the gift of your time (free babysitting, a baked good) rather than an expensive present.

Notice I said to “cut back” rather than cut out. It’s important to set realistic expectations.

Since a budget is very much like a diet (there, I said it), it’s doomed to failure if you tell yourself you will never spend, never eat out, never vacation, never shop, etc.

  1. Make More Mula

See if you can find some extra cash to put toward your debts. Sell household items you don’t need on Craigslist or at a local consignment shop. Sell your old cell phones and electronics for cash on sites like Gazelle or Ebay Instant Sale or for credit on Amazon. Mowing lawns isn’t just for teenagers. I know several adults, including a policeman, who make a huge amount of money by doing yard work.

Related: Why You, Me and Every Milspouse Needs a Side Hustle

Barter to get something instead of paying for it. I know someone who trades painting lessons for knitting lessons. Take on a temporary second job.

  1. Do Things Differently Next Time

Once you’ve paid off a debt, use the cash you free up to put toward another debt. Don’t repeat the same mistakes and accumulate new debt. Learn your triggers and avoid temptation. If emergencies such as car repairs or last-minute plane tickets were what got you into debt, consider beefing up your rainy day fund.

If you are feeling completely overwhelmed by debt, see if your installation has financial counselors at the Family Readiness Center. Military OneSource also has financial counseling available.

By following the above steps and persevering through life’s little stumbling blocks and inevitable setbacks, it’s possible to pay off, or at least pay down, your debt this year. Believe me; you’ll be glad you did.

What are your financial goals for 2015? How do you plan to reach them?

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