Action Line: How you can get out – and stay out – of debt

A reader: I’m always one of the late joiners when it comes to New Year’s Resolutions, but I’m ready now. I make a good amount of money but it seems I never have enough to get ahead. I want to get out of debt and have some money in the bank. Do you have any advice on how to spend money more wisely?

Action Line: That sounds like a great way to bring in the New Year! Smart consumers are always careful about how and where their hard-earned dollars are going. Many people start the new year with leftover debt from the previous year, and additional interest month after month just makes the problem worse as the year goes on. If one of your resolutions is to create a budget or get out of debt, BBB has some tips and tools to help you get on the right track to a better financial future. First things first, create a budget and STICK TO IT!

▪ Track your spending. Whether you prefer an app on your phone, computer software, or simply a notebook to jot down your expenses, keeping track is critical. It helps you see where you are actually spending your money, rather than where you think you are.

▪ Categorize your spending. Create categories based on necessities (housing, utilities, food, transportation) and luxuries (entertainment, dining out, travel). If you have credit card balances, student loans, car payments or other debt, make “debt reduction” one of your necessary categories.

▪ Set up a budget. Once you have an idea where you are spending money, you can set up a realistic budget. There are free online tools to help you, so there is no need to spend a lot of money. Be cautious of scams, however, and never share personal identifying information (PII) unless you are sure of the site’s legitimacy.

▪ Pay down debt. One method is to pay off the credit account or loan with the highest interest rate first (the “ladder method”). Another is to pay off the smallest balance first so you feel a greater sense of accomplishment (the “snowball method”). Use whichever methods works best for you. The important thing is that you are doing it.

▪ Pay bills on time. Consider online bill-paying that eliminates writing checks, buying stamps, etc. Automatic payments can be scheduled ahead of time and can help you avoid late fees and penalties for missed payments.

▪ Save for the big things. Big purchases, such as vacation or holidays, can easily blow your budget. Avoid going into debt for these expenditures by saving up ahead of time and only spending what you are able to save. Many banks and credit unions offer savings clubs that might help.

▪ Save for emergencies. Emergencies – car or home repair, unexpected medical expenses, job loss – can blow your budget. Financial experts suggest an emergency fund of three to six months’ living expenses. If that is too ambitious, start smaller and build up.

This story was originally published January 18, 2016 at 5:04 AM with the headline "Action Line: How you can get out – and stay out – of debt."