We all have debt even though we don’t want to admit it. There may be a select few of us that don’t have much or any debt at all — I envy you. It’s just hard when you’re living from paycheck to paycheck and don’t have the extra money to begin paying off the debts. I’ve been there and I understand! However, I’ve been slowly making my way out of debt for two years now and I’m getting there!
I want to share with you some ways that I’ve been working on paying down my debt, maybe some of these tips will resonate with you too!
Create a mindset for getting out of debt
First and foremost, before you do anything else, you need to create a mindset for getting out of debt. You can say that you want to get out of debt until you’re blue in the face, but if you don’t change your mindset you won’t get anywhere. You have to be in the right place, in the right headspace and really believe that you can get out of debt. (Which I know you can!)
Make a strict budget and stick to it
When I realized that I had to make a change in order to pay off my debts and better my financial situation, I sat down and made a strict budget. When I say strict, I mean strict. I wrote down every single expense that I had including every internet subscription that I had, streaming video subscription, etc… and took them into consideration. I calculated how much I made monthly and made a very, very strict budget off of that. I had every single expense accounted for to the cent and knew what I had to spend, what I had to save and what I had extra each month.
Creating a strict budget is one of the most important ways that you can start to pay off debts. It allows you to allot a certain amount per month to all of your expenses and allows you to see what expenses you don’t need. I had Netflix and Hulu…I didn’t need both of them, so I cancelled Hulu for the time being. I lowered my cable bill because I realized that I didn’t watch half the channels we had. I did absolutely everything to ensure that I could save as much money as possible per month.
It’s also important to take your sinking funds into consideration. Sinking funds are basically emergency funds. They’re used to pay for unexpected expenses such as new tires, new brakes, any presents you may have to pay for, etc… When you save money into this account you have the security to know that you have the money there just in case you need it for anything. They say that in your emergency fund you should have three months of your monthly expenses in that emergency fund. That includes rent, bills, utilities, etc… So let’s say your monthly expenses total $4,000, your emergency fund should eventually have $12,000 in it. I know, to most people, this seems unrealistic but it really isn’t. You just have to put aside a little bit each month in order to eventually reach that number. It might take a few years, but you will get there. (I’m not even there yet!)
Set goals for yourself
Another one of the most important things you need to think about is setting financial goals for yourself. Setting goals will help to motivate you and kind of create a roadmap of how you need to get where you want to be. Some of my goals are:
- Make an extra $1,000 per month
- Set aside $300 a month in my savings account
- Stick to my monthly budget every month
- Pay off all of my debts in 3 years
Your goals will help you to stay accountable and on the right track to being able to say that you accomplished something. You do need to be realistic about your goals. If you have $150,000 in debts, saying that you want to pay off your debts in 3 years may not be realistic. (Depending on your yearly income, of course.) You may have to up that to 5, 6 or 7 years. If your goals aren’t realistic you will get discouraged and you will end up quitting.
Do not use your credit cards
The absolute worst thing you can do, when trying to get out of debt, is continue to use your credit cards. This will just drive you further and further into debt.
I’m not telling you to cut up your credit cards or freeze them in a huge block of ice, but you shouldn’t use them. (Unless either of those would be beneficial to you, who knows!) I have a lock box that I put my credit cards into for the time being. This helps me to not have them on me when I’m out doing errands and therefore reduces the temptation to use them. Basically, I forget that I even still have the credit cards, which is beneficial for me. (A recovering shopping addict.)
Purge and sell
This is something that I only used to do when I was in a financial bind but honestly, it’s something you should do every few months. Keeping too much clutter around will affect your mood, your concentration, your motivation, your focus, etc… Clutter is just bad for your overall environment and the feel of your environment. For me, clutter causes anxiety so bad that I can’t even wind down or find a sense of calm.
Decluttering your home is something that you should do every two months or so. Go through every room, every drawer, every closet, the attic, basement, garage, shed, etc… Put the things that you don’t want, need or things that are broken aside until you finish that one place. Once that room is clean and you’re done decluttering, figure out if you want to donate, sell or trash the item.
If you could sell the item, put it aside in the box that you designate as your “sell” box. You could then have a yard sale with those items, post them on Facebook classifieds, Craigslist, Ebay, Poshmark, etc… Whenever you get money for those items, put that money aside. You can put it in your sinking funds/emergency account or add it to any extra payments you want to make towards your debt.
Start saving in order to pay debts
I’ve spoken about this before but I need to emphasize how important it is to start saving to pay off your debts. Even if you have $10 left over at the end of budgeting, add that to an account to pay off your debts. Save the money from selling your lightly used items, if you get money from Holidays or any extra income, put some of that into your account.
You can’t pay your debts off if you don’t save the money to do so.
Use the snowball method
The snowball method is very basic. Start with your smallest debt and go up from there to the largest. I started with a stupid $81 debt that I had from T-Mobile and to be honest, I don’t even remember what that debt was for! I paid that off then went to my $123 debt, then my $390 and so on. This helps you to concentrate on one debt at a time so you can still continue to save money for the larger debts. You don’t have to pay it all at once but as long as you’re making some kind of payment it will allow you to show the creditors that you’re actively making an effort
Find ways to make extra money
Side hustles are the way to go! On top of owning my own businesses, I also do UberEats and Instacart as a way to bring in some extra money. For me, this equals to about $300-400 more a week when I hit a really busy day. I also do freelancing on the side, mystery shopping, etc… I take on whatever I possibly can in order to bring in that extra money. You just have to figure out what side hustle is the best for you and your situation!
Note & Warning:
Debt Consolidation: Just say no to debt consolidation companies! As tempting as the commercials can be, you will end up owing more than the amount of your debt. You will also end up paying for a longer time period than you originally would. There’s also no guarantee that your interest rates will be lower with debt consolidation. I know this for a fact because I did work for a debt consolidation company in New York City when I was in my 20’s. I know all of the ins and outs of how debt consolidation companies try to screw you.
Debt Settlements: If you get a letter in the mail saying that a creditor will settle for a lower amount, don’t fall for it. Sure you’ll end up paying a smaller amount to the creditor but that will show up on your credit report and you may also end up having to pay tax on the forgiven amount. Most of the time, the forgiven amount is considered income when it comes to tax season. Take it from someone who is a certified tax professional. (I know, I’m the jack of all trades.)