Want to catch up on those old bills and get rid of pink slips for good? Budgeting to pay off debt is the one technique that actually works.
Americans are over $13 trillion in debt. If you're contributing to that number but don't want to, there are some things you can do to get out of debt.
One of the first things you should be doing to gain financial freedom is creating a budget for you and your family. This may sound complicated but it's simpler than you may think.
Keep reading to learn how budgeting to pay off debt works and to get some tips to help you achieve your financial dreams.
How Budgeting to Pay Off Debt Works
The best way to pay off debt is to lower the amount that you're currently spending every month. This will free up more money so you can pay off your debts faster.
A budget allows you to do this by creating limits as to how much you can spend on each of several categories every month. It also helps you find areas where you can cut back.
How to Make a Budget
To make a budget, start with your income. Write down your total income for each month. If you have a fluctuating income, you can either choose the lowest amount or average out your income throughout the year.
Next, write down all of your monthly expenses. Be sure to include the following:
- Mortgage or rent payments
- Car payments
- Gas/transportation costs
- Grocery bills
- Phone bills
- Internet/cable
- Minimum debt payments
You'll also have expenses that fluctuate every month or those that only come up on an annual or semi-annual basis. Make a list of these, divide the total by 12 and put that amount into a "sinking fund" category.
Tips for Paying Off Debt
Here are some tips you can use to use your budget to pat off debt faster.
Consolidate Loans
If you find yourself with a number of different loans that you have to pay, you may consider getting a debt consolidation loan. With this, you'll get one loan to pay off the others and then only have one debt payment every month. Many people use this option to consolidate private student loans. This will help you regardless of how much you owe to lower the interest immediately.
This can have an impact on your credit score, however, so check this blog for more information before you go with this option.
Use a Debt Snowball
A popular debt elimination method is called a debt snowball. List your debts from smallest to largest. Then, pay as much as you can on the smallest while only making minimum payments on the rest.
As soon as you pay off your first debt, roll the amount you were paying on that into paying off the next loan more quickly and so on!
Increase Your Income
Lowering your expenses is only half of the equation. The other way to make sure your debts get paid off as quickly as possible is to start making more money by taking extra hours or getting a second job and using that to pay off your loans fast.
Get More Money Tips and Tricks
Now you know how budgeting to pay off debt works. As you can see, it's simple even though it may not always be easy. However, if you stay consistent, you'll find that you can get out of debt sooner than you thought possible.
If you want more tips and tricks to help you save money, make money, and gain financial freedom, keep reading our blog. It's packed with posts that will help you make smarter money decisions.