This the federal regulator has decided to cut back from $85 billion to $75 billion every month from its QE3 budget.5 percent.
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Amy Nickson On 4th Apr,16
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Review your debt resolutions: What will make me successful in 2014?

Like lots of people, you too must have made some New Year’s resolutions of your own. If so, then you’re amongst the 40 percent of your fellow countrymen to have done that. More so, the grim economic climate of the nation doesn’t come as a surprise for you after having made promises to your own self to try and improve your financial health in 2014.

Maybe you hope to pay down your debts in 2014 or have resolved to increase your savings. In any case, the key to achieve success will lie in how you’ve studied as well as executed your strategies to either save more or to pay back your loans.

How the Fed will influence your financial well-being

On December 17, 2013, the Federal Reserve of New York had planned to taper down the QE3 (the monthly bond buying program) that is considered as an economic stimulus package in the coming months. This the federal regulator has decided to cut back from $85 billion to $75 billion every month from its QE3 budget.

However, it has decided against raising the federal funds target rate and that it’ll remain at almost zero level till unemployment rate in the country has dropped to less than 6.5 percent.

So, how does all these affect you? From the most basic point of view, rates on the long-term loans will gradually increase from their near ground-level in 2013 to clock better outcome in 2014. As a result, in the days to come, loans would become costlier, while savings will be as pathetic as they were some five years ago.

As a matter of fact, your financial resources will get divided into two, first - debt will cost more than before and second, savings rate will fall short of keeping pace with the market.

The fundamental rule of becoming debt free

To become debt-free is easier said than done. However, one of your first step towards that would be to figure out the amount of loan you currently owe. Make a list of all your debts (student loans, credit cards, mortgage, auto loans and any other lines of credit you took) and on that mention every balances owed, the rate of interest applied on them, repayment deadline, creditor’s details and so on.

Once you’re done with that, aim for the highest interest rate debt - one of the basic ways to pay off credit cards. This is because loans of this class are costing you the most in terms of interest and other charges, including over-limit fees, late penalties and the likes.

Still, there are some exceptions too. Take for example, if you’ve borrowed from your retirement accounts and have an inkling that your job is at stake whatever be the reason, then you must pay that off at once without any further delay.

This is due to the fact that you’d have to make the repayments fast or else you'd run the risk of having that loan termed as ‘withdrawal’. This would become a huge tax burden at the time of filing your annual tax return.

Streamline your objective

On the other hand, there are some prominent personal finance experts who consider it absolutely fine in paying down smaller debts with comparatively lower interest rate first. This you may do when feeling overwhelmed in managing your debts efficiently since knocking the smaller debts out will motivate you to keep making the repayments.

That said, there are other equally leading experts who oppose to any such debt help tips and so, its best to choose the one that is most suitable for you, especially one that is based on your present financial circumstances.

Regardless of your debt repayment tactics, just make sure to focus on any particular debt to pay off as soon as possible. In this case, after having paid for your basic monthly household costs, you can pay the minimum amount on all your debts, while throwing as much as possible toward the chosen one.

It is important to note here that even if your credit card rates are lower than your student loans, yet it is advised that you pay off your cards first. The reason behind this is to free up sources of credit to stay prepared for the life’s unforeseen events.

Say for example, you might have to pay for an emergency car repair or a medical diagnosis all of a sudden, whereas any payments made towards a secured debt like student loan wouldn’t be a redeemable one.

Now, if you aren’t sure of how to cut back on your monthly living costs, then you may start by keeping a good record of them. There are plenty of free services that you can take full advantage of to let you know as to where your money goes. Personal finance tools of this kind can be really effective to act as an eye-opener.

Pay off debt and stick to your resolutions

As soon as you’ve paid off your debt, then make sure to snowball it. In other words, add the money that you were using to pay it off to the next-in-line financial obligation on your debt list.

Continue making the minimum payments on all the remaining debts, except for the one that you’ve chosen now to pay back. Keeping a tab on your progress will fuel your momentum - something that’ll provide you with the encouragement to follow the current debt repayment strategy till you have no more outstanding balances to repay.

However, if you want to be debt free throughout the year, then you’ve got to remember these two things:

  • Debt didn’t happen to you overnight.
  • You didn’t become debt free that fast, either.

Lastly, momentum and an urge to pay off debt will definitely matter. However, just don’t get taken aback if your financial resolutions for 2014 waivers a little down the line. So, hopefully you’d have the conviction to stick to your debt repayment plan, snowball them and avoid impulsive purchases at all costs so as to improve your finances and build a sturdy nest egg.

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