Valdosta Daily Times


January 19, 2014

Get out of debt in 2014 (Hurry!)

VALDOSTA — New Years resolutions are usually good goals, but they're not plans.

That's what we realize a couple of weeks into the new year when our well-meaning resolutions are still languishing out of our reach.

To reach them, we need a plan.

So let's talk about debt.

Each new year always brings with it a rash of articles encouraging you to make this year the year you get your debt under control, but this one comes with an added sense of urgency

With the Federal Reserve slowly tapering off the monthly bond purchases they've had in place the last few years, the prime rate —currently 3.25 percent—could be set to rise soon.

While it's held steady at 3.25 percent since the economic crash of 2008 and is predicted to hold steady through the rest of 2014, it's 3.25 days could be, well, numbered.

“In 2014, I think you'll see the Quantitative Easing program abolished,” said Stacy Bush, with Bush Wealth Management. “Then the Federal Funds rate would begin to rise...Usually it takes six months for any Federal Reserve action to filter through to the prime rate, credit card debt, mortgages.”

Bush and his team work with clients to prepare them financially for the rest of their lives.

“The first thing you do is lay down a foundation,” said Bush. “The sub floor of the foundation would be paying off debt...That's the first thing you've got to do.”

You pay off debt the same way you do anything else: break it down into its simplest parts.

The first step is to take inventory. Spend some time investigating and listing out your debts and the pertinent facts: the principals, the interest rates, the minimum payments, the due dates.

Prioritize your payments. If you have a $1,000 credit card bill at 18 percent and a student loan of $5,000 that's at 3.6 percent, it might make more sense for you to focus on the higher interest rate and eliminate that debt first. Which isn't to say that you should ignore the other debts. You want to at least make the minimum payments if you decide to focus on knocking one down and when you finish one, move that money to the next one.

The second step is to stop adding to your debts. With your debt inventory in front of you, figure out your monthly budget. Not just what you spend on utilities and rent/mortgage, but everything. Every gallon of gas, every cup of coffee, every scarf or movie ticket or afternoon burrito. Write it all out.

If you're like most of us, you're going to have to make some changes to your spending habits in order to make larger payments on your debt.

Some might be large changes, cutting down on trips or expensive dinners. Others might be small, like eliminating your three-a-day habit of soda from the office vending machine. And some might be painful, cutting back on hobbies or life-long dreams.

Once you've got a handle of what you can trim from your monthly budget, apply that money directly to your debts, making the minimum payment on your low-interest debts and heavy payments on your high interest debt.

Just like you wrote everything down earlier while working through your budget and debts, keep a record of everything down you spend. It may sound tedious, keeping track of literally every cent, but having that record in front of you every day serves as a reminder, both of your goals and your plan.

Once you've got that debt under control, how do you keep it under control?

Bush advises clients to live on no more than 80 percent of their income, to slowly build an emergency fund that can cover three to six months of expenses and to never buy more house than they can afford, which Bush categorizes as more than 25 percent of their monthly income.

Getting to that point, where you're just avoiding debt as opposed to getting rid of it, is easier written about than done.

“Most people want to get out of debt, but until they have a fire lit under their belly, a passion, a burning desire, then nothing's going to change. It's like everybody going to the gym right now. It's great to go, but it's really important when you get into the trenches in June and July, that's when you should go.”

Finding motivation can be difficult, especially after months of chipping away at your debt and still finding it looming.

Search for something personal: the feeling of the debt off of your mind, not losing money to interest payments anymore, a better credit score.

If you falter, if you slip, it can be tempting to just throw in the towel completely.

But much like exercising in the middle of summer, your resolutions half a year behind you and the next new year half a year away, that's the time when you've got to pick yourself up and stick with the plan.

“If you make a mistake, forget about it and move on. Accomplish your goals the next day.”

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