The cycle of debt can feel never-ending. As soon as one item is paid off, another seems to pop up in its place. The average debt balance carried on credit cards among the more than 189 million Americans who have them is $8,284 per household. That doesn’t include things like mortgages, car loans, and student loans. That’s a lot of debt!
But debt does not have to be a way of life. By making some conscious choices now, you can live a debt-free life later and love it. Getting out of debt is not always easy and seldom glamorous. But the freedom that comes with having no debt sure is. Breaking the cycle of debt is required to get there.
If you are ready to FINALLY get out of debt and stay there, read on for these lifestyle and budget tips.
Stop spending money
This is the least sexy part of getting out of debt but absolutely the most crucial. No matter how much money you earn, if you spend it all and then some, you will incur debt.
Before you get too caught up in percentages of earnings, interest rates, and other more complex aspects of personal financial management, think back to the basic math that you learned in elementary school.
Money coming in – Money going out = leftovers
If that leftover number is negative, your debt is going to grow. You’ll worry about paying your bills, feel guilty about even the smallest purchases, and stay in the cycle of never having enough money to go around.
If that leftover number is positive, your savings can grow. Your money can start working for you to be earning interest. If an emergency hits, you won’t wonder where you’ll come up with the money to take care of it because it will already be there.
One sounds much better than the other, right?
If you are a shopper like me, cutting back on your spending is not very much fun. I love going out to nice restaurants, wearing new clothes, and enjoying new experiences. All of these things cost money. Start by designating one day of the week as your day to spend. Do your shopping on this day only and spend the rest of the week focusing on your financial goals. You don’t need to cram a week’s worth of shopping into one day, but giving yourself permission to still enjoy your pastimes within reason will keep you on the path to becoming debt-free for the long-term. Just like dieting, cutting out sweets and treats cold turkey rarely works for anyone over time.
What should you do with that leftover amount? Put it towards your debt, of course. Paying the minimum required payments will take care of your debt slowly, assuming that you aren’t incurring any more debt. But making extra payments can cut that time drastically. Once you have your spending in check, you’ll have extra money to put towards your debt.
Getting out of debt fast without a sustainable plan that you can implement for good will eventually land you back in the same debt. Rather than let the debt cycle continue, decide what your spending priorities are that fit within your income and stick to them.
Make a plan
The dreaded b-word. That’s right—budget.
Budgeting always comes up during the path to becoming debt-free and for good reason. It is the first step to creating a get out of debt plan. Knowing where you are spending your money is critical to addressing existing debt and keeping from incurring more.
There are a lot of great budgeting tools available online. Mint and You Need a Budget can both import your credit and debit card purchases automatically. You simply monitor your budget to make sure that you are spending within limits that you set at the beginning of each month. These services often come with a small fee. I like these budgeting tools because I can see what I am spending in each category in real-time. Before I go shopping, I like to check my budget to see how much is left in my discretionary spending categories.
If you are more Excel savvy, you can create your own budgeting spreadsheet for free. I recommend starting with the Excel template and adjusting it to fit your specific needs and goals. At a minimum, you need a place to set limits for categories of spending and a tab to keep track of your actual spending each month.
Talk to your bank
It’s no fun to talk about your finances if they aren’t going well. But I guarantee that your bank would rather have the conversation BEFORE you start missing payments than after they are sending collection notices.
Ask them about possible interest rate reductions or debt consolidation offers that they can provide. Oftentimes, simply asking can result in a lower interest rate. If you have excellent credit, your bank will want to work with you to address your debts and keep you as a loyal customer. Even if your credit is less than stellar, talking to a representative at your bank can help you address it and put you on the path to a healthier financial future.
Many financial institutions also have financial counselors on staff or can recommend organizations to help you tackle your debt. These individuals can go through your existing debts and help you come up with a plan to address them. If you don’t have a budget, they can help create one using an online tool or spreadsheet.
Become more frugal
Now that you know where your money is going, it’s time to address the categories where you may be spending more than you should.
Start with your discretionary spending. This includes things like groceries, going out to eat, clothes, entertainment, and voluntary memberships (gyms, health clubs, country clubs, etc.). Find ways to cut down on spending by cooking at home more often, going for a run around your neighborhood instead of on the treadmill at the gym, and using money earned by selling some of your unworn clothes to purchase new ones.
It’s important to be honest about your priorities and what you can cut in your budget. For example, if a significant part of your social interaction happens at the gym, it may not make sense for you to cancel your membership. Instead, cut back in other areas that are not as important. Just make sure that your expenses are less than your income so that you can put your leftover money towards your debt.
As an added bonus, frugal living is often better for the environment since you are not buying and consuming as many things.
Negotiate at work
Once you have a handle on your expenses, it’s time to address the income side of the equation. Remember, to get out of debt the money coming in must be greater than the money going out.
If you have been at your company for a while, it might be time to bring up a raise or other benefits with your employer. Do some research to see what others in your position are being paid. Compile your list of accomplishments and contributions to be able to justify why you should be earning more. If you recently completed a major project, that can be the perfect opportunity to bring up the conversation.
Are you ready to take on additional responsibility at work? Many companies prefer to promote from within, so talk to your manager or HR representative about being considered for an open position. Don’t be afraid to toot your own horn. After all, if you don’t believe that you are worth more money and ready for more responsibility, why should they?
This only works if you are a hard-working and contributing employee who has a track record at your company, so do some real soul-searching before you march into your boss’ office. If you think your work could improve, start by attacking your job performance with the same amount of enthusiasm that you’re putting towards your debt. You’ll gain recognition and respect at work, as well as the increased financial benefits that often follow.
Start a side hustle
Have you maximized your earning potential at work, cut back on expenses, and still want to be more aggressive in paying down your debt? A side hustle, or income-earning gig that you can do part-time, maybe the answer.
You can do everything from freelancing to selling personalized crafts online. The internet is a great tool to build a side-hustle business and make money on the side. Some online sites like Etsy or eBay connect you, the seller, with customers who want what you have made or found for resale. If you want to market yourself through your own website, a web hosting service like Bluehost can help you get your website up and running. Some hosting services even offer help with website design and Search Engine Optimization.
You probably have some knowledge and skill that others would love to learn. Using software like Kajabi can help you create an e-course, that you can then market. You can enjoy a free 28-day trial to see if e-courses can help you grow your side hustle to boost your income.
If you already have a successful side hustle, you may be able to maximize your time and efforts by automating some tasks. Email marketing is one of the best ways to reach new customers but one of the most time-consuming parts of running your own business. Look into services like ConvertKit that will do that part for you.
If you want to really throw your weight behind your debt-free plan, increasing your income is a great use of your time. Once your debt is paid off, you may even be able to make your side hustle into your full-time hustle!
Consider a new job
Some fields have incentives for taking jobs in rural or high-need areas. For example, teachers who agree to work in certain areas for a specified period of time can often receive some student loan forgiveness. The same can be true for nurses, doctors, and the military. If you are able to relocate or already looking for a new job, ask what sort of help your new employer can offer with student loans.
Before you run to your current boss to hand in your notice, make sure that you have a solid plan in place for your new job. Better yet, make sure that you have a new job lined up. Being unemployed is the absolute worst way to try to get out of debt, since it’s hard to keep your expenses less than your income when your income is zero. Consider this path only after a lot of research.
Your side hustle can also turn into full-time entrepreneurship. Just make sure that you’re ready to take on that responsibility. Once you are debt-free, you will feel more confident going for that job or growing your own business.
Are you ready to tackle your debt? The most important thing to keep in mind is that FINALLY getting out of debt is a long process, especially if you have been building up debt for years. Getting and staying out of debt requires a solid get out of debt plan. Steady and consistent choices to minimize your expenses, maximize your income, and spend consciously can have big payoffs when you are FINALLY debt-free.
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