The average American owes $38,000 in personal debt.
Paying off debt is difficult, but it’s even more challenging when you’re struggling to make ends meet. There seem to be more bills that need to be paid, than money in the bank.
When you’re bringing in a lower income, the debt can seem insurmountable. You have no idea how to start paying off debt. But the good news is, it’s completely possible to demolish your debt, even when you’re broke.
If your financial situation causes you to toss and turn at night, read on to discover how you can gain control of your money, start chipping away at your debt and have peace of mind.
Face Your Finances
This is probably the toughest part. Whether your debt is because of circumstances out of your reach, or because of past mistakes, combing through your finances helps you know where you stand. It’s the starting point to making things right!
Write out your all your debts, the amount owed, interest rates, and when they’re due. Having it all on paper can help you gage your next steps.
Don’t be too hard on yourself once you’ve written everything out. Staying in self-pity only distracts you from your destination.
Plan, Plan, Plan
When you’re planning a vacation, do you decide to jump in the car and go wherever comes to mind? Unless you’re filthy rich with all the time in the world, the answer is probably no! You plan your destination, pack, make reservations, and so on.
It’s the same with finances. Now that you’ve faced your finances you can start making a plan on how to get rid of your debt. Getting into debt is fairly easy to do, but getting out is a lot tougher.
Once you’ve gotten all your debts written out, decide which one you want to pay off first. Some people choose to pay off the smaller balances first because they’re able to put money towards the higher balances once it’s paid off.
Whatever you decide, stick with this plan. It doesn’t mean you can’t tweak it when problems arise, but at least you have a roadmap and a goal.
Prepare a Budget
Without a budget, it’s impossible to know where your money is going each month. This is crucial because if you’re wanting to put any extra money towards your debt, you need to locate it.
Some people believe that having a budget is restrictive, but it actually helps you see how you’re spending your money each month. Each dollar goes into a category and you’re no longer left wondering why there’s a zero balance in your account each month.
A budget helps tremendously with tackling overspending as well.
Once you’ve looked over your budget, you can see areas where you can cut expenses. For example, if you’re spending $100 a month on cable, you could cut the cord and put that $100 towards your debt.
Gain a New Stream of Income
When you set up a budget and you find there’s really no money left at the end of the month to put towards your debt, consider finding an extra source of income.
This could be a second job on the weekends or selling items you no longer use. Put a hobby to good use and start a side hustle to bring in some extra money. Have a garage sale or try to pick up some overtime at work.
Even if it’s just a couple hundred dollars a month, it goes a long way in giving you the motivation you need to reduce your debt quickly.
Consider Debt Consolidation
Juggling multiple bills can be challenging and lead to more problems like fees from missed payments and several high credit card rates.
Debt consolidation is combining all your bills into one monthly payment, so you’re free from worry about which bills to pay. Some companies will work with your credit card companies to reduce your debt and get you a monthly payment that is more manageable.
People like debt consolidation because takes the stress off of remembering to pay many bills per month and typically comes with a lower interest rate depending on your credit score and history. A lower interest rate can save you thousands of dollars in the long run, as your consolidation can be paid off in a few years depending on the severity of your debt.
However, debt consolidation does not fix the problem of overspending or lacking a budget. These elements are vital if you want to stay out of debt even after going through the process of debt consolidation.
Stop Using Your Credit Cards
Credit cards can have very high interest rates, and if you’re not paying off the balance each month, you’re digging yourself deeper into debt.
Making the decision to stop using your credit cards will have a positive outcome. You’re no longer contributing to the balance and if you’re paying it down, instead of continuing to make payments you cannot afford.
In addition, a revolving balance can harm your credit score, and opening a new credit card or loan can put a strain on it, too.
If your credit is good, you could call your creditors and see about negotiating a lower interest rate to save you money.
Make Your Payments on Time
Late payments to creditors can result in hefty fees and an increasing interest rate. This creates a larger minimum payment and places a burden on you, especially if the minimum payment is difficult to make already. Not only that, but your credit score could take a hit and the creditor can report you to the credit bureau for late or missed payments
Paying your bills on time avoids these fees and keeps you in good standing with companies.
How to Start Paying Off Debt: You Can Do It!
Eliminating your debt takes work, but it’s not impossible. With some serious planning, gumption, and grit your debt could be gone even on a small income. Stop wondering how to start paying off debt and get started today using these suggestions.
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