Be a Financial Strategist: Your Debt Elimination Plan For 2020

Getting into debt is easy. The real challenge comes in figuring out your debt elimination plan and overcoming your debt in the months (or years) to come. In 2015 alone, Australia’s household debt levels were reportedly some of the highest in the world. Over the past few decades, Aussies have been spending more and more. Too many Australian households spend more than they earn, and this has led more people to rely on credit cards and other types of debt. 

No matter your current situation now is the perfect time to turn your finances around. If you’re struggling with debt or ongoing money stress, this is your call to action to make a change. With the new year around the corner, let this be the perfect opportunity to turn your financial situation around. 

The first step to getting out of debt is to plan for your financial future. Debt isn’t an endless cycle. You can eliminate your debt for good, one step at a time. While thinking about your troubling finances can be stressful, taking the time to go through your financial goals now is better than letting it get worse without taking action. 

In this guide, we’ll help you become your own financial strategist. Here’s the guide you need to create a debt elimination plan for 2020. Let’s leave debt behind in 2019 once and for all. 

1. Take a Look at Your Situation 

The most important part of creating a debt elimination plan is to understand your current financial situation. While it’s intimidating to look at your bank statements and spending, it’s a necessary part of the process. 

Knowing the scope of your financial situation allows you to prioritise accordingly. What steps do you need to take forward? This is the question we’re trying to answer. Gather and organise the following financial documents:

  • Account balances
  • Debt accounts (credit cards, loans, etc.)
  • Income statements
  • Bills and other expenses

Now that you’re organised, start categorising. For your debts, focus on ordering them based on priority. For example, if you have a credit card with a high interest rate, paying it off should be your priority. Organising your financial situation allows you to determine what your financial goals should be.

You don’t have to stick with old-fashioned organization methods. You can use online or digital tools to simplify the process. From automated budgeting apps to spreadsheets, find what works for you. The goal is to have a simple way to check in with your finances. Having something physical (or digital) to remind you of where you stand helps you conceptualise what you need to do. In a few steps, we’ll talk about how to use this organisation to create a budget.

2. Set Realistic Goals for Your Debt Elimination Plan

Next, it’s time to set some financial goals for your debt elimination plan. If you don’t know where you’re going, you’ll never get there. Realistic goal setting is key. 

The word to focus on here is “realistic.” You may feel the desire to conquer all your problems, but doing so can end up stretching your finances thin. Even worse, you could land yourself in even more debt. There is no use in putting too much money into savings or debt if it will leave you unable to keep up with your bills.

Some examples of realistic goals include:

Think about what you can achieve realistically. How much of your finances you can dedicate to your goal? If you aren’t satisfied with the amount of money you can give, take the time to comb over your expenses and see what you can give up or cut back on. 

Now that you know where you’re going, you can create steps to get there. It’s time to start knocking out your goals, one by one.

3. Create a Goal-Getting Budget

A startling 86% of Aussies don’t know how much they pay for each month. One common misconception is that budgets are only for those who are struggling financially. Even if you’re earning a comfortable income, you should still have a budget. Budgets are for everyone, no matter your financial situation. 

Learning how to budget for your life is a serious reality check. Taking the time to see what you spend your money on can help you realse where you could save or where you need to stop splurging. 

Refer back to those income, debt, and expense documents you organised by priority in Step 1. You’ll use these to create a budget for your debt elimination plan. Start by listing your income. Subtract from this your monthly expenses, including any debt payoff minimums. 

What are you left with? 

If the number is positive, this is good news. You can dedicate more of this income for your debt payoff. If it’s negative, you’ll need to make some adjustments. 

If you’re not sure how you should be spending your income, consider the 50/30/20 budget rule. The breakdown is that you spend 50% on necessities (such as rent/mortgage, bills, etc.), 30% on splurges like dining or entertainment, and 20% on your financial goals. 

Breaking up your income into those three can help you realise that you might be spending too much on splurging or that your rent/mortgage is too high for you to financially sustain. This method can also help you maintain a balance between obligations and goals without losing out on your shopping money. 

4. Save for Emergencies

This might sound counter-productive, but you need to save for emergencies before you can save for your debt. When you don’t have an emergency fund, you have to rely on debt to get out of tricky financial situations. 

Nobody can predict the future. You don’t know whether your car will break down next week or whether you’ll lose your job soon. While we all hope these things won’t happen to us, life often has other plans. 

The best way to protect yourself is with an emergency fund. Having at least $500 in a separate savings account means you don’t have to reach for a credit card to handle that unexpected emergency. This gives you the freedom to put money towards your debt without worrying about falling back into the endless cycle of needing more credit. 

5. Keep Yourself Motivated

While starting can be hard, keeping yourself motivated throughout your debt elimination plan is even harder. If you know you’ll lose your motivation, then consider different ways to stay motivated. 

You can craft a vision board and keep it somewhere visible in your home. Your board is a symbol of the debt-free life you’re striving for. You could also try adapting a mantra. Before spending, ask yourself, “Is this better than making another debt payment?” Like the vision board, keeping a mantra reminds you of your goals. 

To make it even simpler, create bite-sized goals. If your financial goal is long-term, the temptation to give up can be strong as time passes. In order to curb those thoughts, set short term goals. Even if they feel silly, they can also help you feel you can achieve your goal and keep you motivated. It could be as simple as to save an extra $25 this month or stop eating out for an entire weekend. 

If you’re motivated by accountability, reach out to your friends to see if any of them are trying to reach any financial goals of their own. Share your goals with one another and set a monthly date to check in with one another. Having someone else keep you accountable for your progress keeps you accountable. Not only that, but taking the time to talk about your struggles allows you and your friend to share healthy financial habits. 

Make Your Debt Elimination Plan For 2020

The biggest part of staying out of debt is to recognise that you need a change. Now that you’ve decided to turn your financial habits around, it’s time to create a debt elimination plan that’s right for you. 

Remember that you’re not in this alone. Millions of Aussies struggle with the same debt problems. Though it can feel isolating, you’re not the only one feeling financial stress. 

There might even be options available for you to supercharge your debt elimination plan. From debt consolidation to debt agreements, you have more options than you think. From there, you’ll free up more of your budget to dedicate to your long-term financial goals. 

While debt can feel overwhelming, there are plenty of strategies and tactics available to take all of these financial challenges head-on. Understanding your financial situation and learning how to make better decisions with your money is the best way to achieve a debt-free life. Let 2019 be the year you leave debt behind for good. In 2020, it’s all about starting the new decade off on the right financial foot. 

For help managing your own debt in 2020 and beyond, contact our money experts at Debt Busters on 1300 368 322. Our friendly team have over 15 years of experience helping Aussies create debt elimination plans that are right for their unique situations. 

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Debt Busters is an Australian owned business which was founded in 2005 - since then we have been able to help thousands regain financial control.

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