Tracking your spending can help you begin the path out of debt by identifying areas in which cuts can be made without disrupting life too significantly. Furthermore, tracking can assist with deciding whether other solutions such as credit counseling or debt management plans should be pursued.
Another strategy is the snowball method, which involves paying off smaller balances first. While this requires greater discipline than other strategies, it has proven its worth time and again.
Make a budget
Making a budget is one of the key steps to managing debt or saving for a major money goal, providing an estimate of what’s coming in and going out each month – it should include fixed costs like rent and insurance as well as variable expenses such as groceries and social outings.
Once you’ve listed all your expenses and subtracted them from your income, subtract that total. If there’s money leftover after subtracting expenses and income, use it towards debt repayment, savings or new financial goals. It is wise to review your budget regularly (biweekly or weekly is optimal), to stay on track and avoid temptation while easily spotting money leaks that require adjustments as necessary. Spreadsheets can help keep track of finances while staying motivated – plus it’s free!
Cut back on unnecessary expenses
At the core of getting out of debt is cutting expenses that are unnecessary – this includes cutting your recurring bills and forgoing credit card purchases – in order to minimize new debt accumulation and stop it escalating further.
As an initial step, it’s advisable to track your spending for at least one month and identify areas in which spending cuts could have minimal negative effects on quality of life – for instance deleting shopping apps and unsubscribing from marketing emails may help, while using reusable items rather than paper towels and single-use plastic bags may also help.
Consider revising your budget to include financial goals written out, according to studies showing you’re 42% more likely to achieve them if written down. Perhaps set an objective such as paying more than minimum monthly debt payments; or consult a debt coach and create a plan to pay off existing debt faster.
Hiding your credit cards
If you find yourself succumbing to impulse purchases, one effective way of controlling spending is by concealing your credit cards. Be it in a safe, file cabinet, or just the back of your sock drawer – anywhere out of sight is best so that they’re less tempting when it comes time to use them. If a nosy sibling or neighbor could read paper statements from time to time, consider switching over to electronic payments so only you have access. Additionally, many have gone as far as freezing their credit cards to stop themselves using them altogether!
Negotiate with your creditors
Becoming debt free may seem daunting at first, but setting realistic goals and keeping track of your progress will keep you on the right path to financial freedom. Saving for emergencies should also be prioritized if your area experiences frequent natural disasters or unanticipated costs is crucial to staying debt-free.
Creditors may agree to temporarily freeze interest if you provide them with a lump sum payment that falls short of what is owed; however, this option can lead to long-term debt problems and should only be considered as an extreme measure. As an alternative option, consider entering into a debt settlement program instead.
Debt advisors may help provide additional insight on how best to negotiate with creditors and offer solutions such as breathing space – which stops most forms of enforcement and stops creditors from charging interest or fees for 60 days – as a possible strategy for negotiation.