Keep Your Eye on the Prize Part One

Everyone has goals that hinge on money. They want to add an addition to the house, or take a vacation, or put their children through college. Your goal should be to get out of debt or at least reduce it to a specific, manageable level. Once you have accomplished that basic goal, you can use all the extra money you’ll have each month to reach other financial goals.

If you try to accomplish too many goals at once (pay off credit cards, save for children’s education, buy a new car), you’ll probably find yourself reaching none of them. While your goal is to get out of debt, you can also set smaller, more immediate goals that you can celebrate as you reach them. Paying off one credit card is a good example. Or keeping track of your spending for one month is another.

In terms of getting out of debt, you’re going to have to decide how little debt you want to carry. Some people don’t mind if they have a car payment or student loan payments; they will be content if they can just pay off their credit cards. Others despise monthly bills and want to pay off all their loans except their mortgage. Still others don’t want to owe anyone a penny.

You should definitely try to pay off your credit cards, especially the high-rate ones, your car loan (since you are financing a depreciating asset), and any other installment loans that aren’t used for investment purposes. After working my way out of debt, my personal view is that the less debt you have, the better. Period. Even the supposed advantages of having a mortgage are overrated, despite the fact that you may be able to deduct some of the interest.

The lower your debt, the more money you’ll have for whatever you want to spend it on, and the healthier you’ll be financially.

Create a Plan of Attack

A payback plan for your debts is where the rubber meets the road. Don’t even consider trying to just blindly pay back your debt as you go along. You’ll need a very clear plan, one that will show you how much you’ll pay, and ultimately how much you’ll save.

Create a list of all your bills, balances, minimum payments, and interest rates. With that information on hand, contact all your issuers to find out if you can lower your interest rates.