New Year’s Debt Resolution Tips to Reduce Your Debt

A calendar page of January 1 with a post-it saying "this year I will pay off my debts" as encouragement to eliminate personal debt.

The beginning of every new year is a busy time for us, as people resolve to pay down their debts and work toward financial freedom. But we want to break that cycle. People shouldn’t just care about their debts when they’re making a New Year’s Resolution. They should care about their debts all year long.

During this New Year season, we want everyone with debt to commit to making the kind of structural changes to their lives that will allow them to conquer their debts and achieve financial freedom.

By making smart changes now, while you’re motivated and committed to your goals, you can make it easier to stick to new financial habits as the year goes on.

1. Track Spending

Our biggest piece of advice for budgeting is to track spending in writing. We urge everyone to try any method that might work for them until they come up with the best solution. Some people might keep a journal; others might use a spreadsheet. There are smartphone apps that will help you track your spending, or you could even photograph all of your receipts using your smartphone’s camera. Whatever method you end up using, track your spending so you know where your money is going and where to make smart adjustments.

Don’t stop tracking after you create a budget. Keep tracking to make sure your budget works you and doesn’t need to be changed to reflect your circumstances.

It might seem like it would be annoying to track every penny you spend, but it’s too important to skip. After a while, tracking will become a habit and you won’t notice it as much. If you do find tracking to be a chore, maybe that will inspire you to think twice before you spend.

2. Create a Written Budget

Once you’ve tracked your spending, you have the information you need to create a new written budget. Budget guidelines should be flexible, because no two people’s circumstances are the same. They should also be realistic. Don’t listen to anyone who says you can spend 30% on “wants,” 50% on “needs” and the other 20% on savings— these aren’t numbers normal people can live with. Download our “Power of Paycheck Planning” booklet for a flexible system that can be adjusted to meet almost anyone’s needs.

Learn More: Essential Household Budgeting Tips

We also stress writing all of this down. We’ve learned that people who write down their financial goals are 90% more likely to achieve them. To us, that means a written budget is more likely to stick, so do the extra work to write out where all of your money is going to go.

Some people’s written budget uses the “envelope method,” where you put cash into different envelopes for different savings goals and budget items. This isn’t very secure, but it is good to do the tangible work of writing down on each envelope what your spending categories are and how much money needs to go to each one.

Whatever system you use should be written and saved somewhere. You might need to make changes, but you have to start with something concrete or you’ll have no roadmap for your spending to follow.

3. Check Out Your Credit Report

In order to know how to tackle your debts, you need a full assessment of where you stand. The best place to start is by checking your credit report.

Your report will show all of the accounts in your name, including what you owe. You may find mistakes—one in four credit reports contains serious errors, so this is a good time to correct the record and improve your credit rating in the process. You might even uncover something as serious as identity theft, which is another great reason to check your own credit regularly.

Start by getting a free credit report. You don’t have to pay extra for a score; just get the free report for now. Choose one of your three reports, like TransUnion, Equifax or Experian, then, four months later, do one of the others. You get one free copy of each report annually, so by staggering your free reports this way, you can get a free report every four months without ever having to pay.

Visual representation of starting anew in the new year, with helpful tips on debt reduction.

4. Rearrange or Renegotiate Your Debts

There are multiple ways to rearrange your debts to optimize your ability to repay them. One option is to call your creditors and ask for a lower interest rate. They may say no, but if you have a good payment history, you could save yourself money in interest and set informed priorities when paying off your debts.

You might consider balance transfers to move debt from high-interest to lower-interest lenders, or to pay off some smaller debts to give yourself fewer bills to pay every month. The goal here is to make it as easy as possible for you to stick to a repayment plan. Don’t do anything too risky or drastic without giving it careful thought.

When looking at how you’re going to pay off debts, you can use the snowball method, where you pay off the smallest balances first, then apply those payments to the next largest debt, or the avalanche method, where you pay off the highest-interest debt first, then apply those payments to the 2nd highest interest rate, and so on. The first method builds momentum and is more motivational, as your early successes in paying off debts will motivate you to stick to your budget. The second method will save you more money in finance charges in the long run. So which system you use is a decision you can make after you’ve reviewed your billing statements (they show what interest rates you are assessed) and started creating your written budget.

5. Do Your Taxes Early

Don’t wait until April to do your taxes. Do them as soon as you get your W-2 and/or 1099 forms from your employer(s). While you’re still thinking about your New Year’s resolution to pay off debt, put your tax refund to good use. Tax refund money isn’t a windfall; it’s income you earned but overpaid to the government. Treat it like income and use it to pay your bills. If you wait too long to file your taxes, you’re more likely to spend those funds on “wants” and other things besides debt repayment.

Doing your taxes might also give you some information for your budgeting. If you know what you really earned last year, and how much you have to pay in taxes, you can adjust your withholding accordingly. Try to plan for a small refund next year—no one wants to owe money at tax time, but a big refund means you’ve overpaid and are using the IRS as a very inefficient, 0%-interest savings account. It’s a guarantee that you’ll save more money by paying down debts than by storing extra money through your tax withholding.

More Resources: Basics of Taxes

6. Set up Automatic Payments

Make sure your monthly bills, including debt payments, are set up to be paid automatically from your bank account. Don’t leave yourself any potential to miss a payment or be late. Automate everything you can to ensure on time payments.

Then, make extra payments every month according to your budget. Depending on whether you’ve opted for a snowball, avalanche, or some other debt repayment structure, put as much extra as you can to your primary debt every month until it is paid off.

Besides debt repayment, prioritize saving. Set a goal to establish an emergency savings fund. Having this fund in place will help you avoid having to use credit the next time a crisis comes along

7. Get Professional Help

Don’t go it alone. Reach out for professional help if you are having trouble managing your debts.

Like we said earlier, you may be able to renegotiate with your lenders, so include them in this process. Ask for a lower interest rate, or even to negotiate a debt settlement.

One thing we would caution people about is not to go it alone when it comes to negotiating a payment plan or debt settlement. Talk to a professional financial coach or debt counselor first. They’ll go over your unique situation with you and help you craft the best plan to get yourself out of debt and create a budget you can live with.

8. Stay Flexible

After the first few months of the new year, most people will forget about their resolutions and backslide into bad habits. Avoid this fate by staying flexible. Reassess your situation regularly, and adjust your budget to help you respond to any changing circumstances you encounter.

Keep reminding yourself that the goals you set at the beginning of the year are still worthwhile, and they are attainable. For more than 45 years, has helped more than 5.2 millions of people work to pay off their debts, become homeowners, and improve their credit. We know it’s possible to reduce your debt, and we’re only a call or chat away.

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined in 2003 and has over two decades of experience in the industry.

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