Ditch Your Debt For Good In 6 Simple Steps
Debt happens. Most people deal with it at some point in their lives, whether due to their own lack of money management skills or unfortunate incidents that caught them by surprise.
What about the aftermath, though? How you deal with what comes after is crucial to setting your financial situation straight. If you owe money and find yourself struggling to pay it back, follow the steps below to get back on track and out of the hole.
1) Take a Trip Back to Your Budgeting Past
Look at your budgeting history. Have you ever bothered to keep a budget? Do you have a clue about the amount of money you’ve spent over the past half year?
If not, time to take the dive and create a household budget. You’ll struggle to get and stay out of debt if you don’t have a clear idea of how you got into it. Looking at how you budgeted in the past provides the first step.
Comb over each purchase made regularly. Simply pulling a number out of a hat won’t do you any good here. You need to focus a laser beam on spending habits you repeat often. This highlights which behaviors contribute to your debt so you can cut them out.
Then examine all purchases made over the last few months. Group them together in categories like groceries, medical, insurance, household bills, loan payments, etc. Make it as complete as possible. Then determine how much you spend on each item within a category.
Don’t forget to include your income as part of this budget either. For effectiveness, you’ll need to compare how much you earn to how much you spend.
2) Determine Your Spending Plan
Every month you must take care of necessary expenses and work towards paying off your debts simultaneously. The itemization from the previous step makes it easier to see the living costs you incur.
Set a small sum of money to the side in case of emergencies in the future. Roll over that money into the following month, as long as no emergency actually arises. This allows the fund to continue growing and gives you some breathing room if needed.
Set aside some money for just your pleasure as well. Too often, people think only spending on necessities is allowed. Budgeting and better money management don’t mean that you must deprive yourself of enjoyment. Otherwise, you might end up impulsively purchasing anyway and defeat the purpose of this whole plan.
So have a stash for the intention of spending on non-necessities like entertainment, luxuries, and so forth. Maybe you’ll want to treat yourself at a posh restaurant or buy an expensive purse. By allocating some money for these types of purchases ahead of time, you can avoid the strain of impulse buying and reduce buyer’s remorse.
3) Sell What You No Longer Need or Use
Do you have items around the house that you no longer need? Are there items you haven’t used in quite a while just taking up space? Will you volunteer to part with personal or family items like furniture or heirlooms?
Even if you do, don’t rush into it right away. Think twice before you offer your great aunt’s tea set to someone else. You may regret it afterward. Only get rid of what you know you don’t want to keep.
This consideration includes the size of your home. Some large houses serve merely as status symbols and prove themselves impractical for their owners. This asset turns into one of the leading causes of debt in the process. If you find yourself in this situation and can sell your house to move into a smaller one, then do it.
4) Turn Into a Money Saving Madman/Madwoman
It doesn’t matter how much you save. Just start saving, however much you can and when you can. Yes, this may mean minimal savings at first. For us, we’d already trimmed everything that we could think of, phone, cable, even increasing our insurance deductibles to reduce monthly insurance payments.
Our biggest savings was in reducing the grocery budget to under $250 a month. In the beginning, much of your extra money will go towards debt repayment.
Come up with a specific amount to reach as your first target. A thousand dollars is a good goal for most, but you might want to go a little lower or higher depending on your exact situation.
Once you begin, don’t touch this money unless you have an emergency. In the future, you can depend on your savings for a while if you ever find yourself in debt again. Having this stash on standby also helps prevent you from pulling out a credit card if you hit a rough patch.
5) Consolidate Your Debt If You Can
Are you struggling with multiple debts? Examine whether or not you can consolidate them into one and repay as a single loan. You’ll get the added benefit of dealing with a single, and perhaps lower, interest rate.
Prepare to negotiate with your debt advisor to get a lower interest rate; it may not happen automatically. However, it’s worth it because you’ll save even more money every month.
6) Bring Home a Bigger Paycheck
If the 40-hour workweek has you still struggling financially, talk to your boss about getting a raise. If he or she hesitates, consider any other possibilities that’ll gain you a bigger paycheck.
This includes ideas such as:
• taking on a part-time job,
• self-employment through independent contract work,
• changing to a higher paying position,
• or starting a business as a side hustle or to eventually replace your current situation.
Following the above steps will put you and your family in a better financial situation, decrease stress, and perhaps even boost your self-esteem. With this action plan, you’re finally doing something to move your finances forward. Before you know it, you’ll see the light at the end of the debt tunnel and can ride the rest of the way to greater financial freedom. Good luck!