This is the sixth of nine basic steps for setting effective New Year’s goals to get out of debt. You can share your debt resolution with others here.
In this series of posts, we’ve been covering the basic steps that you can take to get out of debt. In doing so, we’ve focused on core principles rather than gimmicks. One of the simple truths of finances is that in order to make progress against any type of goal, you need to be able to understand where you are at any point in time and what direction you’re heading. Unless you have a simple financial structure and a mechanism for tracking your direction, it’s very difficult to manage.
A few months ago, I wrote about a friend who had put a goal to get out of debt but then found a year later that her financial condition had worsened considerably. The real take-away from her story is that she had such a complicated financial picture that she and her husband were never able to grasp their situation. They had 16 credit cards with over $100K in credit card debt, over 25 total debt accounts, and 2 checking accounts that they spent from (one for each spouse). They tried to manage their debt load by constantly balance transferring from one card to another. Against this backdrop, it wasn’t too surprising that their condition didn’t improve.
Psychologists have repeatedly asserted that the human mind has limited ability to manage more than 5-6 things at a time. For most of us, it’s simply too difficult to mentally track many different accounts with different due dates.
So how can you create a system for success? Consider the following steps:
- In the second step, we outlined a system you can use for getting organized. Create a simple paper form or a spreadsheet where you write down your statement balance each month and add them up at the end. Compare to previous months to see your trajectory.
- Commit to not spending on your credit cards and then do the same tracking exercise with your card spending. Write down your total purchases for each month from each statement to make sure that you’re not slipping.
- Create a financial structure that will lead to success.
- Consolidate your inbound cash flows into a single account. Use this primary checking account for all day-to-day spending. This will automatically control your spending as long as you’re not charging on your credit accounts. As an added bonus, if you do it through a bank like Wells Fargo, you can then see the categorization of all your discretionary spending.
- If you are trying to pay down debt, set up separate bank account for debt payments that you fund directly from your paycheck. This will ensure that you have enough in your account to make all payments on time and maintain a constant amount to paying off debt.
- Reduce the number of credit accounts. Use balance transfer offers to reduce the number of accounts.
At DebtGoal.com, we believe that seeing the right information about your finances is over half the battle. If you can see it you can manage it, but it’s very difficult to manage something you can’t see. Just seeing your information in an organized way allows you to take action in a way that you can’t when you don’t accurately track the information. You’ll find that your finances will tend to fall in line as you track your monthly situation.
There are many ways you can create an effective financial structure. We’ve given you our thoughts, but the important thing is that you find a system that works for you. But in this, as in most things, less is more.
Tune in for tomorrow’s post when we’ll discuss how your family and friends can help you be more successful.
See you then.
Hope you’re having a great new year.
Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
Tags: debt, Debt Paydown, debt reduction, DebtGoal, Goal, goal debt, New Year goal, New Year resolution, resolution, Setting goals, SMART goal
