Debt can pile up really quickly. Whether it’s through credit cards, personal loans, student loans, or your mortgage, having more bills to pay each month can cause havoc on your budget.
There are online options that help make the repayment process more manageable. Getting an online installment loan through Personal Money Network can allow you to negotiate more reasonable terms. However, even with that, debt can keep growing until it becomes a mountain you’re unsure you can overcome.
You can spend hours browsing the internet looking at ways to make more money or pay off your loans as fast as you can. Although there’s no magical tip that will make all your loans go away, there is one strategy that can help a lot – budgeting.
If you’ve never budgeted before, now is the time to start. In 2018, the American household debt crisis hit over $13 trillion. Although that is a combined about among 300 million people, that is still $13 trillion that Americans carry in debt.
That’s a significant amount of money.
Ready to start a budget? We have five tips that will help you create a budget worth sticking to.
Let Yourself Feel the Emotions of Debt
Debt sucks. There’s no other way to put it. People don’t want to be in debt. It weighs you down so much and can cause troubles in relationships and families. If you really want to tackle your debt and take control of your finances, though, let yourself feel those emotions.
Let yourself get angry. Once you acknowledge these feelings of frustration, you’ll likely be more inclined to stick to your budget and your debt reduction plan.
Track Every Single Penny
Whether you’re paying with cash, credit, or debt, track every single penny you spend. The only way you’ll get an accurate picture of your spending habits is if you accurately account for everything you do.
If you find yourself with less money each month than what your budget tells you, that’s saying something right there. You’re not staying on top of tracking what and where you’re spending. Even if it’s only a dollar coffee you bought, that’s still money you spent.
Another reason to accurately track is to give you a clear image as to where you’re spending the most money. That way, it allows you to find ways to make cuts an put more money towards your loans.
Don’t Neglect an Emergency Fund
As you create your budget, make room each month to put away money for an emergency fund. This can be a tricky one to stick with when your emergency fund grows. Why would you set aside money that could go towards paying off your loans quicker?
Imagine if you lost your job tomorrow in a struggling economy, and you can’t get any work. Will you have money to pay the bills, or will you end up relying on more loans and credit to pay for everything?
Although it’s a hypothetical situation you hope doesn’t happen, it’s very possible. It doesn’t have to be a layoff, though. It could be an injury or illness that takes you off work and has hefty medical bills. Your car could break down or something inside the house. The emergency fund you’ve been building would kick in to cover those costs and prevent you from having to go further into debt to pay for it.
Focus on One Debt at a Time
It’s easy to get overwhelmed, trying to pay off multiple loans. Rather than getting frustrated and confused, pick one loan to budget for. That isn’t to say you’re not paying your other ones still, because you should be.
Welcome to two debt paying options: the avalanche method or the snowball method.
The avalanche method focuses on the debt with the highest interest rates. Because the monthly interest costs you more the longer you have the loan, this is an excellent strategy. You continue to pay the minimum payments on everything except for that one loan, which you put more money down on. Once that’s cleared up, take those payments and put it towards the next loan with the highest interest rate.
The snowball method is quite similar, except you’re paying off the smallest loan first, regardless of the interest rate. Once that’s paid off, you take that loan payment onto the next smallest loan until everything is gone.
Using a budget for paying off debt allows you to keep track of how much you’re putting each month, which is the first loan to tackle, and how far you’ve come.
Put Your Paycheque to Your Fixed Expenses First
Any bills that have to get paid each month (mortgage or rent, insurance, utilities) should get the first chunk of your paycheque. There is no sense in trying to fit them in with whatever you have remaining. They aren’t going anywhere. Once you have those categories figured out and set in stone, you can take what you have remaining and divide it amongst your variable expenses and your loans
Start with the minimum payments so you can get those covered. You still need to live your life, so make sure to include categories like groceries, your emergency fund, and anything else that you cannot live without.
If, after all of this, you have no money left over, it’s time to see where you can make adjustments in those variable expenses. Can you meal prep each week to save a few bucks on groceries? Maybe it’s time to cut back on the weekly coffee run because it adds up quickly. As you make those cuts, the extra money you save can go towards your debt.
Remember, budgeting is hard even if you’re 100 percent dedicated. You’ll have a month where you’ll blow your budget. Don’t let that shy you away from getting back on track.
By being intentional with your budget and having a purpose, you’ll be more likely to stick to what you plan. Set yourself goals to keep you on track and motivated to get rid of your debt and reach financial freedom.