Debt can be so uncomfortable, especially when you are trying to repay your debt while working on a tight budget like me. When you have little extra money, paying a debt may seem quite a daunting task. You may even get frustrated when much of the money goes towards paying interest. Here is tried-and -true advice to help you get out of debt and remain financially free.
1. Make a plan for payment
To get rid of debt while operating on a tight budget, you need to develop a plan. Determine how much money you owe, and write down the names of the particular lenders you owe. You need to prioritize which debts you need to pay first. Wesley Edens, a financial guru, suggests you can do this by considering the amount owed, interest rates and the terms of the loan. Next, you need to figure out how much money you can commit to paying each loan. It is prudent to pay the one with the highest interest rates first. You may also negotiate a plan of payment with your lenders to find out if they can reduce the debt, or give you better terms of payment.
2. Use Automatic Deductions
When working on a tight budget, you may feel that the small payments you make do not make any difference. You need to understand that every effort you make towards paying your debt helps in reducing the load. An automatic payment scheme will help prevent the trap of making excuses in repaying the debt. Make plans to have money taken out of your account each month to go towards paying the debt. However, you need to put great consideration in your budget to help you avoid excess spending because this money will not be available for your use. So, determine how much you need to pay each month and then start paying.
3. Cut your costs
This sounds obvious, but when you are working on a tight budget, cutting your expenses can be quite difficult. Evaluate your monthly expenses and then ask yourself what you can change. Doing this will leave you with more funds to help you in paying your debt. You may have to stop eating out in restaurants, do your workout from your home instead of going to the gym, or even cut down cable TV. This will help to get you out of your debt faster.
4. Change your spending habits
This sounds similar to cutting down your spending, but it is different. There are several possible reasons why you got into the debts in the first place. These may include student loans or mortgage, and some of these reasons may be very legitimate. However, the debts may also have arisen from past poor spending choices. Whatever their cause, you must choose to stop unnecessary spending to eliminate the debts. If your mortgage is an excusable cause of the debts, then you have to be proactive in paying off the debt, and then be content and avoid purchasing a larger and more expensive home. If you have credit card debts, avoid the stores or avoid the temptation to use your cards. Choose to pay off your debt instead of accruing more debt.
Getting out of debt is a necessity, though it is not a very simple task for many people because they keep up with the bad spending habits that plunged them into debt. You need to alter your spending habits and create a plan of action of paying the debt starting with the heftiest, and stick to that plan until all the debt is paid.
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DC @ Young Adult Money says
Great tips and all things I have personally done to pay off my debt. I would add that if you have done all these things it makes sense to start looking at opportunities to make more money. Increasing my income has had a huge impact on my debt, especially once I was able to completely offset my debt payments with side income.
Jess @ Best Credit Cards Canada says
And make a strict budget and stick to it! This can often be super hard but it very necessary.
I also agree with everything you have listed here. Getting out of debt is hard work but because it is such work, it will likely discourage you from getting into debt again (hopefully)!