Budgeting tips on how to pay off debt
Sadly a fact of life is that over time, debts can build up. Someone once told me that getting into debt can be a slippery slope and I know that fact all too well. In my late 20’s I found myself in quite a large amount of debt but I’m pleased to say that with a little time, the right advice, great support and a good budget I managed to pay off my debt which left me feeling like I was walking on air.
When I realised how much my debts had built up I was very frightened, I told my Mum, who naturally was very worried too but I wasn’t asking for her to pay it off. I needed to share my fears with someone for emotional support and who better to provide that kind of support than your Mum?! Together we worked our way through it and in just over two years I’m pleased to say I was debt-free.
So here are my budgeting tips on how to pay off debt;
1. Tell someone – don’t go through it alone. Getting support from the right people can help massively. That way when they see you making unncessary purchases when you are feeling weak they can gently guide you back in the right direction. It also helps to have someone to work through your finances with to make sure that you account for every last penny when creating a budget.
2. Be realistic – you will need to write down all of your money coming in AND all of your money that you pay out. Not just the household bills, car expenses and the like but you also need to factor in things like gym memberships, the morning coffee run or lunch out, I mean EVERYTHING. To help jog your memory on the things you need to record it’s pays to use a good Budget Planning tool. I like this one from Money Savings Expert from Martin Lewis.
3. Write to your creditors – inform them that you would like to set up a payment plan to reduce your debts. I found that many of my creditors were willing to freeze interest providing I kept to my word and paid off my debts as I had agreed. For those who are unwilling or if you don’t feel comfortable asking, get a balance transfer credit card which gives you the chance to move all of your credit to one place and pay no interest for a set period.
4. See where you can make savings;
- is there someone at work who lives near you? Perhaps you could car-share to save on travel expenses or perhaps one of your neighbours works near to your work. Do you really need to drive? Perhaps you could cycle to work and cancel the gym membership too?
- turn the heating down by 1 or 2 degrees, pop on an extra jumper or snuggle in a blanket to reduce heating bills.
- cancel magazine subscription and pay a visit to the local library – it’s free to read there and you’ll be supporting your local too!
5. List your debts – start with the smallest debt and work up to the largest. Make the minimum payments on all debts other than the smallest and pay off as much towards that debt as possible. When you pay off the smallest debt relatively quickly it will motivate you to keep going. Once that smallest debt has been paid off, move those payments towards the second smallest debt and so on until all debts are paid off.
6. Keep revisiting your budget – once you have started following your budget, continue to monitor your spending carefully as you may find that you will struggle to keep certain expenses as low as you had budgeted or perhaps you have over-budgeted for some things and can use that extra to save towards unforeseen expenses like a boiler breakdown or put it towards paying off your debts.
7. Learn from it – once you have found that you can stick to a budget, don’t make the same mistake twice. Stick to your budget and save the money (or a large proportion of it) that you were using to pay off debts. Build yourself up a buffer so that you don’t wind up in debt again in the future.