Most of us will end up in debt at some point in our lives. At times, it can seem frustrating and even impossible to pay off those credit cards or auto loans, so we just throw the past-due notices away. However, there are simple steps you can take to pay down debt and regain control of your life.
Start Budgeting
All you have to do is write down how much money you make each month and how much you spend. You’ll likely need to cut back on dining out or recreation, but the money you save can be used to pay your outstanding debts. Many experts suggest the 50-20-30 rule, which says that you should keep 50% of your budget for fixed expenses such as your bills and groceries, 20% for savings and 30% for discretionary expenses such as those that we mentioned earlier.
Pay Off Your Most Expensive Debts First
This tip is especially helpful for paying back a loan advance or credit card debt. You should sort your interest rates from highest to lowest. Once that’s done, go after the bills that carry the highest rates first. This way, you can get away with making minimum payments on lesser debts until the larger one is paid off. Once you pay off a debt, you can repeat the process on the one with the second-highest rate. This leads us directly to the next tip.
Pay More Than the Minimum
If you just make the minimum payment each month, then your creditors will get to make more money on interest, which prolongs your struggle. The best way to fight this is to pay down as much as you can each month. A good tip is to pay double the minimum wherever possible, or you can consider making weekly or bi-weekly payments.
Put Windfalls Into Your Debt
If you receive a bonus from your job or any other sudden cash influx, you should use it to help pay down your debts instead. You may be tempted to spend it on consumer goods, but fixing your troubling finances is far more important. Besides, you can afford a few luxury items when your debts are all paid up.
Try to Increase Your Funds
Some people won’t be able to pay down everything on the income that they currently have, so it’s a good idea to look for ways to make more money each month. If you can handle another part-time job, then you should consider applying for one. You could also ask your boss for a raise. If you do get another job, keep in mind that you only have to keep it until your outstanding balance is paid off.
Set up Rewards for Milestones
A good way to stay motivated is to give yourself reasonable rewards for reaching major goals. For example, you could take a weekend trip somewhere nice once you’ve cut your debt in half. Just be sure to avoid too much decadence at this time, or you may head back to where you started. With these special treats, you’ll have something to work towards as opposed to a hard slog that can seem to go nowhere.
No Comments