This article give you 3 tips for managing debts, and becoming debt free. The 3 tips are:
- Tip 1 for Managing Debts – The Budget
- Tip 2 for Managing Debts – The Debt
- Tip 3 for Managing Debts – The Savings
A friend of mine recently, asked me about what I did to get out of debt.
She went on to tell me how she was struggling to make ends meet, and she had so much debt she actually wasn’t even sure where to start, my heart broke for her, so grabbing out a pen and paper from my handbag I wrote down these 3 tips for managing debts that are essential to managing debt and starting a debt free journey.
Tip 1 for Managing Debts – The Budget
People rarely know where they are spending their hard-earned money, having a budget and using it regularly will help you understand and set boundaries.
Most people unfortunately think of a budget as restricting and can feel overwhelmed on how to start a budget, but there are so many great apps, templates etc out there to help.
A great starting point would be MoneySmart Budget planner and as a guide line your budget should include the following:
- Income – all and any money you receive that can be used to pay expenses and debt.
- Fixed Expenses – list everything that is essential to your day to day living eg electricity, rent, food.
- Debts – this might be a little overwhelming as you add these up but make sure to include every debt like loans, credit cards, buy now pay later etc
- Variable Expenses (sinking funds) – these are for expense that you know are likely to happen or happen regularly eg home repairs, medical expenses, Christmas, Rates etc.
Once you have set up your budget it would be ideal to set up the different accounts for your sinking funds with automated deposits each pay.
Your budget should be realistic, you want to be able to stick to it so consider carefully each item as you list them on the budget.
Tip 2 for Managing Debts – The Debt.
It’s very important that you do not add more debt during your debt free journey.
The goal is to pay off the debt as quickly as possible and there are a number of ways that you can do this the 2 most effective are The Snowball System or The Avalanche system.
Selling any items that you no longer have a use for or you just want to try minimalism (I love minimalism) is a excellent way to start paying of debt.
If you are struggling to make repayments on any of your debts it is absolutely critical to deal with the issue before it gets out of hand.
Talk to your bank they maybe able to help, if they can’t speak to a financial counsellor there a many free options available.
Remember the sooner you seek assistance the sooner you can elevate some of the stress.
Tip 3 for Managing Debts – The Savings.
Having an emergency fund is a must have!
This is savings to help when you encounter unexpected expenses like the car breaking down or losing your job.
When considering the best way to build this fund, the ideal amount to aim for is between 3 to 6 months of living expenses, now it will take time to grow this fund, but is worth it.
It is suggested that you set up a bank account that is not at your usual bank and have a set amount paid into it each pay.
Getting out of debt is a process it will take time and there will be times when you want to give up but please don’t, it will be worth it in the end once you have Ditched your debt!
We hope that these 3 tips for managing debts have helped you.