How to Set a Budget to Pay Off Debt and How to Stick To It
Debt is a game of strategy. You have to plan your moves around a budget so that you can cross the finish line to pay off all of your debt. Just like any other game, you have to know the rules and, in this case, the keys to success are avoiding debt delinquency and knowing how to create and stick to a budget and using that journey as motivation to reach the ultimate destination of financial freedom. With just a few short steps, you will win this game in no time.
Step One: Know Your Income and General Expenses
When you are learning how to set a budget, you must first take the time to recognize your income and expenses. The best way to start is by collecting or downloading your bank and credit card statements. Take note of how much you can definitely expect to earn each month and what your expenses traditionally look like. Then you can begin to lay out how much to designate to rent, car payments, insurances, utilities, and other essential expenses every month. Whatever money you have left over you can then carry over to the next step.
Step Two: Calculate Your Outstanding Debts and Interest Rates
Paying off your debt while on a tight budget may seem tough at first, but it does not have to be. After you write down your income and expenses, it is important to create a separate document that lists your outstanding credit card, loan, and other debts. You should make sure to write down exactly how much you owe for each account, what the minimum payments are due every month, and what the interest rates are.
With this information, you can decide the best plan of attack. Some people prefer a snowball method to debt relief strategies where they begin by paying off the smallest debt first and work their way up to the largest debt. Other people prefer to pay off loans based on interest rates and will seek to pay off the loan with the highest rate first and then work their way down. There are plenty of pros and cons to both, but the key is to stick to a plan that will motivate you to keep paying off your debts and make you excited to secure your finances in the long run.
Step Three: Prioritize Your Spending
When you take the time to budget your finances, you will be able to pay off your debt in no time at all. After you have your income, typical expenses, and debts all laid out in front of you, you can easily put a plan together regarding the best way to spend your money. Before you begin picking and choosing what money will be designated to what expense, take a look at what expenses are causing a dent but are not really necessary. If you find yourself spending a lot of money on restaurants, shopping, subscriptions, recreational activities, or vacations, you can easily discover that you have several hundred dollars you can put to better use.
Before working on your debts, make sure you have enough money to cover the essentials you need from day-to-day, including housing, vehicle, and utility bills. Then consider how much you can spend on groceries, personal care, and savings. Divvy up the rest of your money between your outstanding debts.
Step Four: Give Yourself Wiggle Room
Living a debt-free life is a little more than just learning how to set a budget. The key to making any budget a successful part of your lifestyle is to allow yourself some wiggle room. You do not have to restrict yourself to variations of 89-cent Ramen noodles every night, turn down every offer from friends for a night out, or completely neglect your savings.
Make sure to budget a small amount of money every month to allow yourself to enjoy life. Not only will this make sure you do not get too stressed over your financial situation, but it will actually keep you on track for getting out of debt because you will experience first hand that budgeting is actually a great tool for success. Also, make sure to designate money for savings every month. If you suddenly lose part of your income, you will have money to help you get by until you can re-establish your income and it will prevent you from falling further into debt.
Step Five: Celebrate Your Successes
The best way to stick to any challenge is to celebrate the small things. Paying off debt on a tight budget is a trying experience that can definitely take a mental, emotional, and even physical toll on thousands of people every year. When working on paying off your debts, make small goals that will excite and motivate you. Maybe treat yourself to a new outfit, a trip to a new restaurant, or even a short and reasonably-priced vacation when you manage to pay off 25 percent of your debts, 50 percent, 75 percent, and then all of your debts completely. Having exciting events such as these to look forward to will only continue to inspire you.
Step Six: Get Advice from Expert Debt Relief Consultants
When it comes to creating a budget to pay off debt, sometimes the best course of action is to get help and advice for your debt from someone who is experienced on the matter. Along with referring to a friend or family member who went through a similar situation and came out on top, you can always speak with a debt settlement company.
Contact Liberty Debt Relief to begin making your way to financial freedom today.
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