Jim Winsett of the BBB. A. Many people start the new year with leftover debt from the previous year. This debt is compounded by interest month after month that makes the problem worse. 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 an improved financial future.
Track your spending. Whether you prefer an app on your phone, computer software, or simply a notebook to write 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, and transportation) and luxury items (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 unless you make sure the site is legitimate.
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 paying down debt.