Anyone who’s ever had to face seemingly insurmountable debt can tell you how hopeless and overwhelming it feels because finding a way to get out of it is no easy feat. Do you consolidate your debt through a personal loan or apply for another credit card for transferring balances?
Whether you’re in debt due to excessive spending or job loss or want to pay off debts before your divorce, as advised by your divorce lawyer, you need to have a solid plan that you can realistically follow. Here are some pointers to get you started.
Create a Budget You Can Stick With
With a set budget, you can see where you’re spending every dollar on and determine areas where you can save money and reduce costs. You can make a standard spreadsheet or dedicated app to create and keep track of your budget. This will help you analyze your expenses and income so that you can create a strategy for paying off your debts.
Subtract all fixed expenses from your regular income. The figure you come up with is free cash flow to pay off debts and cover variable costs.
Start Putting Money in an Emergency Savings Account
Life, and all the unexpected twists and turns that come with it, won’t stop just because you’re focused on paying off debt. This is why you should have emergency savings.
Are you planning to put every extra cent you have toward credit card payment? If you have paid off a significant amount of your balance but don’t have savings for an emergency, you’ll end up charging your card again. In this light, financial experts recommend having at least three months’ worth of living expenses in your emergency account.
Lower Your Monthly Expenses
Reducing monthly bills frees up cash that you can put towards debt payments. Check your budget plan to see your monthly expenses and consider cutting those that you don’t really need.
Perhaps you could live without cable or Netflix for several months so you can spend more time on a side hustle and save more money. If your heating or cooling bills have been increasing, contact your provider to see if they offer free audits to help you determine changes you can make to drive down the costs.
Pick Up a Side Hustle
Think of a hobby or skill that you can spend some time on daily and monetize. Look out for side gigs like online selling or driving for ride-sharing apps that could fit into your schedule. Essentially, look for ways to earn extra cash and then use those extra earnings to pay off debt.
Consider Debt Consolidation
This works by rolling all your current debt into a single loan product, such as a balance-transfer credit card or personal loan. This will also help you pay off your debts by helping you avoid late or missed payment fees, lower your interest rates, and make budgeting easier.
But first, you should determine whether debt consolidation is a wise strategy for your specific circumstances. To do this, begin by calculating your blended interest rate. While the debt consolidation loan rates could be fairly high, it might be lower than your existing blended rate. If this is the case, opt for debt consolidation.
In the end, there are no secrets and shortcuts to saving money and paying off debts. It would help if you had a smart plan and self-discipline. You might likewise have to explore various avenues for paying off debt, based on who and how much you owe. However, spending the necessary time to plan your debt strategy will surely help.