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The first thing to do to get a handle on debt is take a look backwards: for the past month, list everything you’ve bought and what you earned. When you want to change spending habits with a budget-based approach, a snapshot of what actually happened is essential for identifying where your money is going every month. This will show you where you are spending your hard-earned money, and where you can find areas to free up funds to reduce debt.
Next, list your needs vs. wants. Unnecessary spending can be curbed if you keep a list of essential needs and make it a goal to only purchase these necessary items. If you have credit card debt with high interest rates, such as department store credit cards, consider a debt consolidation loan to pay these off, or at least move these debts to a lower-interest rate card; discover how much you will save in interest. Keep only one credit card to help with revolving expenses and eliminate the boutique and high-interest cards.
This will help you reduce your debt levels faster, since more of your payment will go toward the principal, and you will have just one payment to make. Remember to check your card balance regularly and stay below your credit limit. Always make it your goal to pay your balance in full by the due date. When you can only pay a portion of your credit card balance, pay as much as you can. At the very least, make the minimum payment on time.
More helpful budgeting tips
- Pay off the debt first that has the highest interest rate attached to it.
- Plan each month on what you will spend, save, share, and send off to pay down debt.
- Don’t over extend yourself by getting the maximum mortgage or line of credit that you are offered.
- Ignore “buy now, pay later” incentives. Fees and high interest rates tied to these offers will only increase your debt load if you do not pay on time.
- Reduce small but sneaky expenses by bringing your lunch and coffee to work; another way to save on food costs brown-bag lunches, fewer restaurant meals, and buying less prepared and packaged foods.
- Speak with trusted financial professionals earlier than later. These may include representatives at your credit union, bank, or a credit counseling agency.
