Ushering in a New Year means a fresh start. 2019 is the ideal time to focus on saving more and spending less. But as so many families depend on the next paycheck to manage household bills and expenses, is it even possible to become debt-free? The answer depends on so many variables, because digging out of debt is a process that involves a LOT of dedication and hard work. Paying down debt requires sacrifices and saying no to those things that you might really, really want…but don’t need.

Don’t expect to pay down all those debts overnight. If you look at all your debt in total, then it’s easy to feel very overwhelmed. Few families can suddenly write out a check for $5,000 to pay off a credit card completely; instead, decrease that debt incrementally over time.

According to Statista, one of the top three resolutions for 2018 included putting away more money into savings. Unfortunately, for many families, financial security is a growing concern. CareerBuilder reports that more than three-quarters of Americans live from one pay period to the next.

If you want to resolve to pay down those debts in 2019, get ready to eagle-eye your finances, cut costs and maybe get a side gig to earn some extra cash. Digging out of debt is hard work, and now it’s time to roll up your sleeves! Need help? Here’s a guide on how to plan for a debt-free year in 2019!

How to Plan for a Debt Free Year in 2019

Step 1: Create a Budget!

We’ve discussed budgeting often. Why? Creating a budget is the most basic step to understanding your finances. How do you know how much you can spend if you haven’t created a budget? A good budget will list ALL of your expenses. This includes fixed monthly bills like loans and insurance payments and variable expenses like food, gas, electricity, credit card bills, entertainment, etc.

When you’re accounting for variable expenses, err on the side of liberal estimation…because you’d rather over budget than under budget. Don’t forget to add in budget line items for clothing and maybe even car repairs (or just line-item “car maintenance”). Next, calculate your monthly income. If you’re a freelancer and your income fluctuates, you may have to average your monthly income. However, if you’re on a salary, your income should be fairly fixed each month.

Review all the expenses from the previous month and deduct that figure from your income. Did your income exceed your expenses? Or did your expenses exceed your income? Review your credit card statements. Did you have to charge expenses to your credit card to make ends meet? If you did, this means that you might be overspending. Remember, credit cards are emergency resources; they shouldn’t be used to make up a lack of income, because this can quickly lead to snowballing debt.

Step 2: Cut Your Costs or Boost Your Income.

If you realize that you’re spending more than you make, then it’s time to cut costs and expenses.

So what costs do you cut if your budget is broken? For a full rundown of all the expenses that can be axed in your budget, check out our article “Common Household Expenses You Can Cut Immediately.” There are MANY expenses that you can cut, because many expenses are wants and not needs. Just because you want something doesn’t mean you need it! Especially if that item causes you to rack up more debt or delays you from paying down your debt!

How do you boost your income?

Maybe you can’t cut anything, because you are already living a humble lifestyle. So now what? To ensure that your income outweighs your expenses, you can hunt for a second job. This may mean finding weekend employment, becoming a rideshare driver or freelancing. If you become self-employed or work as a contractor, make sure the new gig doesn’t conflict with your current employer (or compete with them!). As a freelancer or contractor, don’t assume your paycheck is all gravy; taxes may need to be paid separately on a quarterly basis so check with your accountant to discuss those details!

What if you don’t have the time for a second job?

Then you need to downsize your “stuff.” This may mean selling off items you don’t need like:

  • High-end clothes, which may be sold on consignment.
  • Jewelry to a gold and diamond buyer.
  • Fine china on eBay! You’d be surprised how many people are on the hunt for replacement dishware!
  • Or your car you don’t drive often. Or maybe you own a boat, motorcycle or an RV. If you have an asset that you don’t use or need any longer, you may be able to flip it for income.

If you decide to sell assets, be sure to talk to your accountant about the tax implications of that income. According to the IRS, even household furnishings are a capital asset. The sale of your personal items could be subject to a capital gains tax, but this gets really complicated; that’s why it’s so important to talk to your accountant. Once you find out what your own proceeds are (minus any taxes!), then get ready to pay down debt.

Step 3: Start Paying Down Debt

What debts do you pay first? And how much do you pay? Managing debt and paying down balances is really an individual choice. You may decide to allocate only a portion of your budget surplus to paying down debt while saving the rest in an emergency fund. Or you may want to use the entire surplus to lower your debt. Everyone has their own priorities.

One of the biggest factors when you choose to pay off or pay down a debt, though, is the interest rate of a loan or credit card. Higher interest rate loans and credit cards likely mean higher monthly payments, so you may want to make those accounts a priority. You can pay a little extra on each loan every month or focus on one account. Some families hate credit card debt, others wish to tackle student loans. The end goal, however, is to help lower and even eliminate your debt! Sit down and review all your debts to understand what accounts you wish to pay down first and then make a plan to start chipping away at those balances.

Paydown 101:

  • Consider paying down (or off!) high-interest debt first
  • Review all loans and credit cards to find where that interest rate hurts the most!
  • Make a plan to pay down extra principal each month. If you have the means, you also may pay a loan in full (but be sure to review your finances before you make a massive payment, as you don’t want to become financially vulnerable later).

Lowering Credit Card Debt

For many consumers, credit card debt is a large monthly burden. According to Nerdwallet, the typical American household has a credit card debt of more than $15,000. Looking at that credit card debt as a single figure, though, can be financially frustrating. However, you also don’t want to just keep paying the minimum monthly payment because that means you’ll be paying off that debt for many, many years. If you have more than one credit card, you may want to focus first on paying down the card with the higher interest rate.

What if your budget surplus allows you to pay off a balance in full, should you?  Paying off a balance will relieve you of that monthly payment; just be sure you can afford that big payment. How much you allocate depends on your individual financial situation and your personal comfort. However, Nerdwallet notes that interest for credit cards accrues daily; so paying off (or down!) that balance is a smart idea.

But tackling credit card debt isn’t just about paying down balances; you also need to manage your charging habits…and change those habits if they are causing you additional debt. If you want to pay down that debt, don’t rack up the balance with more charges! Instead, focus on paying for your expenses out of your monthly income. Remember: if you don’t need it, don’t buy it!

Digging Out of Credit Card Debt

  • You may want to focus on higher interest cards first
  • Before you pay a large balance in full, look at your savings and make sure this heavy payment won’t leave you financially vulnerable in the long-term.
  • And don’t make charges for purchases you don’t need! If you’re trying to pay down your credit card, it doesn’t make sense to take on more debt! Emergencies only!

Shedding the Weight of Student Loan Debt

One of the biggest hits to the monthly budget is student loan debt. As those monthly payments can be huge—depending on the balance and interest rate—chipping away at student loan debt may be a priority. According to Value Penguin, most Americans with student loans have a loan debt that exceeds $30,000.

Like most loans, if you just make the minimum loan payment each month, paying off the debt will take years. If you have extra cash flow, you may consider adding another line budget item for paying down the student loan principal amount.

Student Loans: Extra Payments or No?

  • Some individuals HATE student loan debt and consider this a #1 priority for lowering debt each month. However, everyone’s financial situation is unique.
  • If you want to make a higher payment to lower principal, talk to a rep on how to allocate the payment.
  • If the loan is higher interest compared to other debts–or if you have few other debts–your student loan may be a larger priority for you

Lowering Balances on Larger Loans: Car & Mortgage Loans

Should you pay down those car loans and mortgage loans? If you don’t have many other debts (or debts with higher interest rates), then you may want to make a larger payment to lower the principal balance. Mortgage loans are long-term loans (typically 30 years), but car loans are shorter-term loans (typically three to five years). If you want to own that car outright and say goodbye to monthly payments, then it makes sense to pay down that loan. For many families, car payments may put a large burden on the budget. And, let’s be honest, it always feels great to pay off that loan!

So cars and mortgages…pay down or stay the course?

  • If your car loan is low-interest, though, you may wish to prioritize those higher-interest loans first!
  • Paying down a home mortgage may mean more money in your pocket when you sell, but this depends on how much the sale price exceeds the loan balance.
  • The housing market also affects the selling price of your home.

When the clock strikes midnight and 2019 begins, make a resolution to become debt-free! While this might feel like a lofty goal, eliminating debt is feasible. However, living a debt-free life isn’t without sacrifices. You may need to take on a second job, cut expenses and embrace a steel willpower. Needs will replace wants, but humility is a virtue! This year, set the goal to live below your means and use your excess cash flow to start chipping away at high-interest debts and free yourself from the burden of those expensive monthly payments. Never look at your debt as a single figure; instead, break down those balances and start chipping away at the numbers each month. And, eventually, you’ll become free of all those monthly payments! And that means even more income that can be saved and invested for your future!