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How To Lose Financial Weight This Year

Jan 2 2014, 9:11am CST | by

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How To Lose Financial Weight This Year

It’s that wonderful time of year againJanuary.  We have enjoyed a slew of holiday celebrations and a million reasons to eat poorly and not exercise.  It’s no wonder that most of us make a New Year’s resolution to lose weight and every other ad on TV or the Internet is for weight loss programs, gyms and exercise equipment.

Maintaining a healthy weight and lifestyle is very important but there is another form of weight that we should resolve to take care of… our debt! Just like those extra pounds that physically weigh us down, too much debt is an enormous strain on millions of households across America.  So how should someone struggling with debt get started?

Well, the first place you should always look is at your own current spending habits.  Start by tracking your expenses for a 3 month period.  You could start now and go forward but thanks to online banking, you should be able to go back 3 months on your bank and credit card accounts to get an accurate picture of where your money has been going.  If you don’t know how to categorize your expenses try an expense tracker spreadsheet or utilize an online budgeting tool such as mint.com or yodlee.com.

Once you know where your money is going, you can find your weak spots and start finding ways to cut back in those areas. (We all have them so don’t be embarrassed.) This resource has some great ideas on how to cut back without sacrificing any and all enjoyment in life.

Now you can start to put a budget in place.  Some people like more old school techniques like tracking their spending plan on paper or a spreadsheet or using the envelope system.  Others prefer more modern ways of monitoring it all with convenient online tools like Mint and Yodlee.

Another method to improve your cash flow is to make sure that you do NOT get a big income tax refund.  A lot of folks love to get that big check but in reality, all they did was make an interest-free loan to Uncle Sam.  If you have debt, especially credit card debt, you may be paying your credit card company 18% interest or more while loaning money to the IRS at no interest.  That’s not good business!  Go to this IRS withholding calculator to figure out how to setup your withholding so that you get the most take-home pay possible every payday without owing more in taxes on April 15th.  Just remember that while you may still get a nice refund this March or April, don’t plan on that windfall in the future.

Now that you have a plan to control your spending, you can start your plan to pay off the debt.  Your budget and withholding changes should have freed up some cash that you can start to use to make extra payments. This is where www.powerpay.org can become a great resource in building your debt elimination plan.

You simply list every debt you have, who you owe, how much you owe, what the minimum payment is and the interest rate and the site will let you know how long you will have to pay those debts and what the total interest you’ll pay will be.  Then you enter your extra payments. If you have one-time large windfalls – like that soon to be final tax refund this spring – you can enter that as a one-time payment.

Once you’ve entered that info, you choose whether you want to pay off the highest interest rate debts first or focus on the smallest balance first.  Either one will work depending upon your personality.  If you are a disciplined person, you will want to pay off the highest interest rate debts first to reduce the interest you pay and become debt free as soon as possible. If you need the immediate gratification of seeing quick progress, then pay off the smallest balance first.  You may pay a little more interest but if you’re more likely to stick with it, then it is a good tradeoff.  Whichever way you choose, powerpay.org will help you build what Dave Ramsey calls a “debt snowball” by taking the payment you were making on a debt that is paid off and adding that to the next bill on the list.  By having this payment calendar right there whenever you want it, you will always know who to pay, how much they get, and when to pay until you are debt free!

Hopefully you’ve seen that starting to pay off your debts can be done in 2014. You may even find that it’s easier than you thought. Now if any of you have suggestions on how I can lose the physical weight before spring break

Liz Davidson is CEO of Financial Finesse, the leading provider of unbiased financial education for employers nationwide, delivered by on-staff CERTIFIED FINANCIAL PLANNER™ professionals. For additional financial tips and insights, follow Financial Finesse on Twitter and become a fan on Facebook.

Source: Forbes

 

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