No one wants to be in debt. The truth is, however, that whether you fell into debt through overspending, unemployment, medical issues, or other circumstances beyond your control, it can happen to anyone. Luckily, through smart budgeting, you can begin to pay off your debt and regain your financial health.
Here are some of the best budgeting tips to help you get out of debt:
1. Start a monthly budget.
You’ve probably heard this advice before, but through better budgeting, you can make your spending more efficient. Document all your monthly household bills, including mortgage, rent, auto payments, insurance, utilities, phone, internet, cable, groceries, childcare, and transportation. Keep everything in a spreadsheet or on a budgeting app. Don’t forget to factor in dollars spent on dining out, entertainment, recreation, travel, and any other miscellaneous expenses. Any money put toward savings or emergency funds should also be included. Now, onto your debt budget.
2. Choose a payment strategy.
A part of paying off your debt is having a strategy in place. Financial experts often advise a couple of different methods, including the debt avalanche strategy. This is where you pay off your debt with the highest interest rate first and move on to the second-highest, and so on. While this may save you money over time, the debt snowball is also a great strategy to put into place that may be more rewarding in the short term. When you apply the snowball method, while still paying the minimum on all your debts, you take any extra money you have each month and pay it toward the smallest debt. Once that’s paid off, you take the money you were using toward that debt and pay it toward the second-smallest debt, and so on. Reaching initial goals more quickly can help encourage you to stay on your financial path.
3. Keep looking for extra money.
The more you can cut back on expenses, the more money you can apply to your debt. Look at your budget, what are some costs you can cut back? Eating at home more or limiting your travel are ways to reduce your costs in the short term and focus more on paying back your debts.
4. If you still need help, try a debt management plan.
By working with a credit counselor, you can potentially enroll in a debt management program. If you qualify, your counselor will work with your lenders to consolidate your loans into one affordable monthly payment so that you can pay off your debt in three to five years.
Living in debt is no way to live. By following these tips, you can begin working your way toward a brighter, debt-free future.