Many if not most of us will experience debt at some stage of our lives. Being in debt is tough and getting out of debt is even tougher, especially if you do not have much spare cash.
Monthly payments can increase and become impossible to pay. It’s disillusioning and can leave you feeling helpless and sometimes even depressed.
It is always better to get out of debt as soon as you can. If you don’t, interest will accrue, making it more difficult for you to pay off your debt in the long term.
If you have any spare money at all, it should ideally go towards paying off your debt.
Learn how to get out of debt on a budget with these five simple rules…
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#1 Create a Payment Plan
Write a list of all your liabilities. Include every single debt and bill you owe, even the small ones and the ones you routinely ignore!
Think about the urgency of each one and prioritize the most overdue debts and the ones amassing the most interest.
If you have debts with no interest then put these further down your list. Then, work out what you can feasibly pay each month.
Consider spreading the payment over a few different debts. Don’t forget you can always contact the lender and suggest a payment plan to them.
Send them a copy of your budget to indicate how much you can afford to pay and stay in control.
#2 Set up Automatic Deductions
List your income and expenditure each month and work out how much spare cash you have, if any. Use it to pay what you owe.
Do not even think about spending on holidays or buying a gift. Paying off your debt is your priority.
Arrange for the spare money to leave your account as an automatic payment. This way, you won’t be able to spend it nor will you be able to make up excuses for not paying your debt.
Check your account regularly as automatic payments can sometimes result in errors.
#3 Cut Costs
Think about all the ways you can reduce your spending. It’s amazing what you can think of when you try!
Can you postpone your gym membership, or take a payment holiday from your mortgage?
What about cancelling payments to charities and membership organizations?
You could even explain to friends and family that you will not be buying gifts this year. If you allocate the money you save to paying off your debt, you will start to see results quickly.
#4 Change Your Spending Habits
There is a reason why you are in debt. It is easy to believe you have more money to spend than you really do so STOP SPENDING and identify the areas of your life where you spend too much.
For example, you could be spending $36 per week on coffee – that’s the equivalent of just two regular takeout coffees per day.
Think about the type of spender you are, and get to know your bad spending habits so you can break them.
Are you an impulsive spender with a number of credit cards? If so, stay away from the shops.
Are you an aspirational spender? Ask yourself honestly if you really need a bigger mortgage or car loan.
#5 Help is Out There
Debt is not something to be ashamed of and there is plenty of good help and advice out there. Many organisations can show you how to get out of debt on a budget.
Should I Borrow More to Pay off my Debt?
Getting a loan just means getting into more debt and should be avoided at all costs. Why not see if a family member or friend is willing to give you an interest free loan instead?
If you really have to get a loan, try asking the bank to increase your overdraft before opting for a high-interest unsecured loan. Or, see if you are eligible for a credit card with a 12 month interest-free deal.
Remember, getting out of debt is tough and you are not alone. The average US college graduate has over $37,000 of debt.
Stay positive, face up to your fears, avoid procrastinating and you will get out of debt.