You live from paycheck to paycheck. It covers your monthly rent, utilities, car payments, insurance, student loan, and basic groceries. You have nothing left for emergencies let alone extras like needed new trainers, an occasional meal out, or the deductible to repair that broken crown in your mouth. You’ve maxed out your credit cards and feel like you’re spinning on a wheel with no chance to jump off.
You are not alone. Hundreds of millions of Americans helped to create $14.6 trillion in debt in 2021. From student loans to credit cards to unforeseen emergencies, debt has become a huge dead weight on the US economy. The good news is that you can get out of debt and build your savings at the same time.
Don’t Go It Alone
Let your trusted family members and friends know what you are trying to accomplish. You need as much support as possible. When people understand, they are far less apt to pressure you into going out on a shopping spree or for an expensive meal. Close friends and family will support you every step of the way which is what you will need because getting out of debt is hard, but very doable. Getting out of debt takes time and patience. It will take anywhere from one year to five years to see the end. Your birthday can be a wonderful marker for evaluating how well you are doing. Ask you friends to send encouraging messages or birthday cards online that celebrate your current debt breaking achievements, and will motivate you to continue to strive towards your ultimate debt free goal.
Create a Budget
To ensure your success, you must create a budget that you can live with. Write down every single expense you have each month. Up to 60% of your paycheck will be used for needs such as housing, transportation, and food. 20% should be used for paying off debt. You are trying to save at the same time as paying off your debt, so paying yourself is a top priority. Include a percentage of your paycheck that will go towards savings and put it in the expense column so you see it as a needs versus wants expense. Saving 10% of your paycheck will provide big rewards faster, however, if that seems daunting, start with 5% towards savings and re-evaluate your situation at your next birthday marker. Anything you can save each month will lead to a financial win. But you must make sure you are putting something away every month. Remember, putting away means you don’t touch it, ever. Create an emergency fund so you don’t have to touch your savings. Paying yourself will keep you motivated and guarantee a financial victory in the end.
Sticking to Your Budget
It’s easy to create a budget, but sticking to it is much harder. Housing needs are static. You know exactly what must be paid monthly. Everything else however is up to you. Instead of using your car daily, consider public transportation or carpooling with coworkers. Most HOV lanes require more than one person in the car so this is a win win for all. It is also good for the environment. Never go to the grocery store without a physical list in your hand, and never go grocery shopping hungry. Stay focused, don’t look around and be tempted by displays, just stick to the list and get out of there. Shop around for a less expensive telephone service. Do you really need all that data on your phone? Consider a month to month service that doesn’t require a contract. Check your home entertainment expenses. How many streaming services do you really need? The money saved by dropping streaming services could go towards your savings or emergency funds.
Pay Off High Interest Loans First
Many people have varying debts with assorted interest rates. The higher the interest rate on your debt, the more money banks are taking from you. Check your student loan debt. Many student loans come from more than one place. Some government loans have higher interest rates than others. Do your research and make sure you are paying down the highest rate first. You can choose where your money goes, you just have to direct the bank processing the loan. If you don’t have a student loan, look closely where other bank loans exist. Is your interest rate on your house payment reasonable? Today’s interest rates for homebuyers are quite good. Perhaps you can refinance to a lower 15 year mortgage interest rate, and pay off your home faster. Don’t stay with the same car insurance company year after year. Shop around for a more competitive rate.
Most people in debt have maxed out multiple credit cards with high interest rates. They pay the monthly minimum which pays the interest but barely touches the principle. Do your research and look for a low interest rate balance transfer credit card. You can transfer your higher interest rate debt to this card. Look into a debt consolidation loan with your financial institution. Compare its interest rates to those rates you are paying already. It could be advantageous to take advantage of such a loan to pay off your high interest credit cards and even some other loans. Shop around as different banks offer different terms. Talk to a credit counselor if all of this makes you nervous doing it on your own. They can give you sound advice. Remember, once you have paid down your credit cards, you must not be tempted to use them again. This is where your support team can provide you with positive encouragement.
Many people who are in debt receive tax refunds every year. Now is not the time to put them towards that desirable vacation or a new 72 inch television. Use that return to pay off more of your debt, but also use some of it to pay yourself. This isn’t just about getting rid of debt, rather, it’s about you empowering yourself and coming out financially ahead. Any windfall of money that comes your way should be used towards paying down debt and paying you.
It’s time to jump off the debt spinning wheel. Now is the time. You’ve got all you need to become debt free and financially sound.