Pay Off Debt Faster With These Simple Monthly Budget Tips
Trying to figure out how to pay off debt faster? The interwebs will likely offer you countless budgeting tips that may or may not work for you — budgeting tips that suggest you stop buying your daily coffee or going out to eat, ever. Know that budgeting doesn’t mean you have to give up all the things you enjoy, and if you’re trying to pay off debt, there is a whole range of simple strategies you can use to accomplish your goals. Let’s take a look at these monthly budget tips.
1. Get an Overview of Your Expenses
The first step to creating a monthly budget in order to pay off debt is to start by getting an overview of your expenses. Write down your fixed costs and your variable costs. You can’t create a budget and start paying off debt until you first see where your money is going every month.
Use spreadsheets (or whatever system works for you)
A good way to visualize your expenses is to use spreadsheets or a money book. You can categorize expenses broadly by separating fixed costs and variable costs, and can break it up further with more specifics like housing, food, transportation, credit card bills, rent, etc. With this strategy, you can easily see what debts you have that need to be paid off.
Track your expenses
It’s not just enough to write down estimated expenses. If you want to pay off debt, you’ll also need to track your expenses on an ongoing basis. Tracking expenses can fill up a lot of your headspace, so it might be a good idea to use a tracker — or use your credit or debit card’s spending tracker — to see where your money is going.
2. Cut Costs
Spreadsheet or not, whatever strategy it is that you use to outline and track your expenses, eventually you’ll be able take a look to see where you can begin to cut costs. Are you spending a little more on food every month or going out? This is a good opportunity to see where you can reduce some costs on something realistic, and where you can just make some minor adjustments. It’s also a good way to evaluate your needs and wants.
3. Set Goals for Paying Off Your Debt
Creating a simple monthly budget to pay off debt requires you to understand what your debt is in the first place. When you look at your monthly expenses and track your daily spending, you’ll see what type of debts you’re paying as well. Take a good hard look. What debts are most important for you to get rid of? What debt should you get rid of first? Are there any that you don’t mind having because the interest and payments are low?
Think about what’s highest and what has the highest interest rate. You can also tackle something small and easy to get rid of.
Consolidate what you can
A good way to create a budget for paying off debt is to first consolidate the debt that you can. Consolidating debt not only makes your life easier with one payment instead of multiple payments, it can also lower your interest rate. This makes it easier to pay off debt overtime, too.
Take advantage of a 0% balance transfer
If your credit is OK, you might receive offers for 0% balance transfer promotions if you open up a credit card. It may seem counterproductive to open up another account when you might be trying to pay off other credit card debt. But this can be a great way to start getting that debt down quicker, minimizing interest and paying off the principal.
4. Start Paying Off Your Debt
Once you understand what you have to pay and have done everything you can to minimize the debts you have through consolidations while cutting down other costs, now is the time to allocate how you dedicate income to various debts.
To start your budget planning, set deadlines for when you want to pay off your debts. By knowing how much disposable income you have each month after your fixed expenses and altering your variable costs, you’ll know how much you have to put towards your debts to pay them off by a certain time.
For example, let’s say you do a 0% interest balance transfer and you have 18 months to pay off that debt (assuming you’ve put some thought to this before doing the transfer). You’ll want to divide your debt by 18 to see how much you have to pay per month to get rid of it. Of course, you can/should use this strategy even if you don’t move around/consolidate your debt before starting your self-payment plan.
Think of a deadline for each of your debts and figure out how to get there with some simple math. This will help you stay on track, with a light to look forward to at the end of the tunnel.
Setup automatic payments
Another easy way to create a simple monthly budget for paying off debt is to set up automatic payments from your bank account. This way, you know your bills are getting paid no matter what, and you don’t have to worry about forgetting a payment and then incurring late fees, getting further from the goal. Just be sure to line up your automatic payments with the due dates on your bills as well as when your money is coming in.
Overpay when you can
In addition to figuring out the math on what you owe to minimize your debt by a certain time and setting up automatic payment to do that, you can also overpay when you can. Don’t dip into your extra cash too much, as you’ll always want to have a cushion to avoid more debt in the event of an emergency. But, if you’re able to, make those extra payments!
5. Stop Accumulating More Debt
Budget all set? Great. You’re learning how to pay off debt. Follow these tips every month, and you’ll be on your way to paying off your debts in no time. But, if you want to stay on this disciplined path, you’ll also have to be careful to not accumulate more debt. It may seem like a no-brainer, but during this time, avoid taking out more debts or spending money on anything that will make it harder for you to accomplish your goal.
Freshbooks – What is Fixed Cost vs Variable Cost?
Experian – Which Debts Should I Pay Off First?