Being stuck in debt without a clear way out of it can be stressful. When in debt, it can almost feel like you don’t even have control over your life, or that there isn’t anything you can do about it. However, there is something you can do about it.
It isn’t easy, and it takes proper planning and hard work, but you can create a budget that allows you to get on the right track to paying off you debts. Formulating a plan to get out of debt sounds hard but it can be very simple. Follow these steps to build your budget and shovel yourself out of your debt.
Figure Out How Much Debt You Have
The first step to creating a budget is to understand exactly what you are budgeting for. You will need to know how much you owe before you begin to develop a budget to pay it off.
In order to determine how much you owe, be sure to check with all loan providers that you borrowed money from, including banks, student loan services and car dealerships. If you’re having trouble remembering all your debts, a copy of your annual credit report can help you. This report will list all of your debts as reported to the credit bureau.
Reach out to each company on the list to verify the debt. While discussing how much you owe with loan services, be sure to try and negotiate your loan payments to the most affordable monthly cost payment possible. In many cases, banks and other loan services are understanding and willing to work with you as long as you are honest and open about your ability to pay off the debt.
By gaining a realistic understanding of exactly how much you owe, you should be able to build a timeline and prepare a budget to pay it off.
Conduct a Financial Analysis
After determining how much you owe you then need to conduct a complete financial analysis. A financial analysis helps you to gain a better understanding of how much you make in relation to your expenses and debt.
The best way to conduct a financial analysis is to live your life in a normal manner for an entire month making any changes to your spending. During this month, document every time you spend money, regardless of how small or big the payment is. After doing so, you should be able to see where your money is going and eliminate any frivolous spending that may exist.
Ultimately, the goal is to split your income into thirds. One third to bills, one third to savings and the final third as spending money. There are many in the circumstance where expenses and debt payments outweigh your income. If you fall into that rut you may need to consider additional income opportunities, such as a second job or selling unwanted items around the house.
Start Building Your Plan
Once you’ve recorded a month or more of your spending data and you have your debts clearly laid out, you can begin to set a realistic budget. Be sure to budget for even the smallest of items, including a budget for snacks, birthday presents for loved ones and even the occasional meal out. By accounting for every expense you are able to pinpoint exactly where your money is going and accurately set aside a monthly savings as a result.
As stated before, following a “thirds” budget plan is ideal. If you are capable of getting your spending, bills and savings to all equal one third of your post tax income, do so. It is inevitable that sometimes things do not go at all according to plan, especially with families. Consult with your spouse and children as they may think of expenses that you didn’t originally. After all, the thing that derails a budget the most are unexpected costs.
After these steps, you should have a clear and concise idea of exactly how much you can put aside into savings each month. Start implementing it the next month and don’t be afraid to change your budget as you go and learn how to better manage your money.
Finding Methods to Increase Income
After gaining a full understanding of both your expenses and debt, and then weighing it against how much you make each month, you should have a fairly good understanding of whether or not you can cover the payments of your debt.
In the event that your expenses outweigh your income after taxes, then you should consider other sources of income. There are plenty of easy ways to make additional money outside of your full time job. Find a part time job that provides some flexibility and work when you have the time. Turning a craft or hobby into another revenue source is a great way to stay happy about your savings.
If you simply don’t have the time to take on a job of any kind, then perhaps you have unwanted items lying around the house that hold some value, such as an old car or signed sports memorabilia. Try not to sell items with heavy sentimental value as you may not be satisfied with the amount you receive for it, and regret it later. Stick to things that are unused or cluttering your home.
Stick to the Budget
Without following through and staying consistent with the budget that you have put together, it is all useless. Having steady monthly payments is the most important process to paying off personal debt. If you find you have trouble with remaining consistent, using resources such as a debt payoff planner can be helpful in doing so.
Along with using a debt payoff planner, one of the best ways to ensure you stay consistent is to find a motivational factor for paying off your debt. Perhaps just becoming debt free or being able to save money in the future drives you. Whatever your motivation, use it to stay disciplined on your budget.
Do you have any tips for budgeting money while paying off your debts? Leave a comment and share your experience in the section below.