An annual debt review takes about an hour and produces insights that improve every month of the coming year. Here's the complete process.
What to Measure
Pull current balances on all debts. Compare to balances from 12 months ago. Calculate: total debt reduced, total interest paid, average monthly extra payment actually made (vs. planned), and net worth change (assets minus liabilities). These numbers tell you whether the plan worked, not whether you felt like it was working.
The Honest Assessment
Most people find a gap between their planned and actual extra payments. Identifying the specific months that fell short — and why — is more useful than the aggregate shortfall. Was it one big unexpected expense? A motivational dip in a specific quarter? A systematic overspending in one category? The diagnosis points to the specific fix.
The Interest Rate Check
Your debt landscape may have changed in 12 months. Have rates changed on variable-rate accounts? Has your credit score improved enough to refinance anything at a better rate? Run this check annually — a 2% rate reduction on a $15,000 balance saves $300/year that can go to principal instead.
The Priority Check
Are you still attacking debts in the most effective order given your current balances? As debts are eliminated and balances shift, the optimal order may have changed from your original plan. Recalculate your avalanche or snowball ordering annually.
Setting the Next Year's Target
Define a specific debt reduction goal for the coming year: "$12,000 paid off" or "credit cards gone" or "debt-free by October." Specific, measurable, with a date. Then work backward to the monthly payment required and verify it's achievable with your income and expenses. Adjust the income or expense side until the math works.