4 Budgeting Tips for People Trying to Get Out of Debt
by Mashum Mollah Finance 12 December 2018
One of the most difficult things one can do is to climb out of debt while on a limited income. When face to face with the amount of debt that one owes, it’s easy to become overwhelmed, thinking there is no way they can possibly ever pull out of the hole they are in.
Fortunately, however, there is a way for those in debt to climb their way out, and it starts with budgeting correctly. Regardless of how much your current monthly income is, there is a way to create a budget that works for you.
With these four budgeting tips, you can get out of debt and achieve financial freedom.
1. Make a Payment Plan:
The first step towards getting completely out of debt is to establish a realistic payment plan with your creditors that gets you closer towards erasing your debt entirely.
When creating a payment plan, you should first establish a list of anybody and everybody you owe money to. After determining all creditors and lenders who you owe, it is necessary to find out exactly how much you owe each of them. In doing so, you may be required to get in contact with them and receive a quote. Be sure to verify that the amount they are owed is legitimate by checking the contract, and your records of prior payment to determine how much you still owe.
After establishing how much you owe, and to whom, you can begin to establish a payment plan with each one. The most recommended strategy is to pay the minimum amount possible to each creditor, except for the one who you owe the least amount to. For the creditor who you owe the least, try and pay the debt off as soon as possible.
Also, be sure to negotiate with each creditor as much as possible. Many creditors are willing to negotiate lower interest rates or even accept a settlement payment that is far less than what you actually owe, especially when you are able to pay it all at once.
2. Cut Unnecessary Expenses:
In many cases simply creating a budget and payment plan is not enough, and the expenses sometimes may outweigh the amount you bring in each month.
The ultimate goal in attempting to become financially free is to bring in more money than you have to pay out each month, ultimately allowing you to save money and live with peace of mind. Before you can pay off any debt, you have to get your expenses under control.
The best way to cut unnecessary expenses is to first go a month documenting everything that you purchase normally. At the end of the month, you should have a detailed record of all that you spend money on each month. After which, you should have a clear understanding as to what areas you can cut and improve upon. Here are a few ways you can cut expenses and help you get out of debt quickly:
- Reduce your car payment
- Be more energy efficient
- Plan your snacks and meals
- Shop more efficiently
Every individual has different expenses, so the areas to cut expenses may be different for each person. However where there is a will there’s a way, and by being creative and finding ways to lower your expenses each month you can set yourself on a path to full financial recovery.
3. Find Extra Income:
With all too many the expenses simply outweigh the amount they bring in each month, leaving them without any additional money to pay off their debt.
When this occurs, there is not an easy fix solution that is going to solve all of your problems. Instead, there is only one solution outside of cutting expenses. That is finding extra sources of income.
The best way to find an extra source of income is to find a part-time job or consulting work. While it may seem difficult to do, there is something for everyone when it comes to extra income. For instance, if you love sports you could referee local league games on the weekends and weeknights. If you love reading, you may be able to be a part-time librarian. If you like to lift weights, try a part-time gig working at a gym.
Another good way to earn extra money to help with debt payoff is to sell unwanted items around the home that have value, such as old cars and furniture. Don’t sell items you truly care about.
Also, be sure not to take on any more debt in the process of making ends meet, as doing so is counterintuitive to becoming debt free. Say no to accepting any more loans from others when you need additional income, and try your best to find other ways to earn more money instead.
4. Save Money:
It is also important to save money when setting a budget to get out of debt. Unfortunately, emergencies occur that require us to pay unexpected payments that can cripple us financially and completely destroy the budget that we have set for ourselves in advance.
By saving up money each month, however, you have a safety net built up and are not required to completely abandon your budget in the event that unexpected expenses creep up.
The fact of the matter is life is unpredictable, and expenses such as hospital payments and car repairs happen. If you save money up, however, you can go about your budget in a normal manner, even when monthly expenses rise due to unexpected occurrences.
There is no amount too small to save. Simply saving a hundred dollars each month can leave you with a nice safety net in the event something unexpected occurs. Financial freedom means protection from financial uncertainty, and the best way to ensure that is to save money each month in a consistent, responsible manner.
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