Will 2022 be the year you pay off your debt? Here's how to make it happen.
Becoming debt free is a dream for many. And it's a dream you may be able to make come true in 2022 – depending on the amount of consumer debt (debt you owe from purchasing goods) you have and your plans for repayment.
So, will 2022 be the year you say goodbye to your consumer debt for good? Here are a few key questions that can help you figure out if becoming debt free is possible this year.
1. How much do you currently owe?
When you're trying to determine if you can become debt-free in 2022, you first need to take stock of your total outstanding balance. After all, if you owe $20,000 and your annual income is $30,000, it's very unlikely you'll be able to pay off your entire debt balance over the course of a single year.
If you aren't sure what your total outstanding balance is, you can find out by signing into all of your online credit accounts or reviewing all of your loan and credit card statements. You can also pull your credit report, which will allow you to see a total list of the outstanding accounts you have. That way you can make sure you aren't missing any when you add up your total debt.
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2. What's your current payoff schedule?
After you figure out how much you owe, consider what you're paying each month toward your credit balances. If you owe $10,000 and are paying $500 per month, then you aren't going to be able to repay your debt for many years – especially since some of that monthly payment will go toward interest rather than reducing your principal balance.
Some debts, such as personal loans, require set monthly payments that will allow you to repay your debt on a clear schedule. But with credit card debt, it can be hard to figure out how long it will be until you're debt free since your minimum payment can fluctuate based on your current balance. The good news is, there are many debt calculators you can use online to estimate when you'll be free of your debt based on your monthly payments.
3. Can you refinance to make debt payoff easier?
For many people, refinancing current debt can be the best way to make repayment cheaper and easier. And depending on your situation, it could even make it possible to become debt free in 2022 or soon after.
Refinancing involves taking out a new loan you use to repay one or more existing debts. You could use a personal loan and pay off a bunch of credit cards and other creditors. Or you could do a credit card balance transfer to move money over from a credit card with a high rate to one offering 0% interest on the transferred balance for a limited time.
If you're thinking about refinancing, look at the repayment schedule of your new loan as well as the amount you can devote to monthly payments to see if it's possible to become debt free this year. If you can transfer a $2,000 credit card balance to a 0% APR card and you can afford to make $500 monthly payments, you should easily be able to become debt free this year – even if your new card charges a balance transfer fee – since your monthly payments would be large enough to reduce the principal balance to $0 when you aren't paying any interest.
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4. Can you rework your budget to devote more money to debt repayment?
Finally, consider whether you can rework your budget to devote more money to debt payoff. The more you can send your creditors each month, the faster the principal balance will fall. If you can send enough money each month to creditors, you should be able to become debt free in 2022.
By taking these four steps, you can get a good idea of whether you can make this year the one in which you pay off your consumer debt for good. And remember, even if you can't fully pay your balance in 2022, refinancing or paying more toward your debt can still help you become free of this financial burden ASAP.
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