Credit cards, medical bills, student loans and mortgages put a strain on your budget. Taking steps to become debt free will give you more control of your finances and a little breathing room in your budget. A little sacrifice now means you can get away from living paycheck to paycheck down the road.
It sounds simple, but many people give in to the temptation to charge even while they are trying to pay off debt. Even a few charges here and there slow down your progress toward becoming debt free. If you're tempted to charge, lock away your cards rather than carrying them around in your wallet. Focus on changing your spending habits by considering the difference between wants and needs.
When debt starts building, some people are afraid to confront it head on. You might not even know exactly how much you owe in debt. Sit down with all of your statements for credit cards, loans and other forms of debt. A spreadsheet works well for tracking all of your debt because you can make columns for the amounts owed, interest rates and minimum monthly payments.
Make a Budget
Now that you know what you owe, take some time to devise a budget for all of your expenses. List all of your monthly expenses, including bills, debts and personal expenses like toiletries and groceries. Calculate how much you should have left over each month that you can apply toward your debts. A detailed budget helps keep your spending under control and helps identify extra money you can put toward paying down debt.
Create a Payoff Plan
Your debt payoff plan goes beyond your basic household budget to detail exactly how you will become debt free. Prioritize your debts and decide which one you will pay off first. Paying off the debt with the highest interest first will save you money, but paying off a debt with a low balance can give you some momentum and encouragement toward eliminating debt. Choose the order that makes the most sense to you, and stick with it. Put any extra money each month toward that debt to bring down the balance quickly. Once it is paid in full, move on to the next debt on the list, putting all your extra money toward that payment. Continue this method until you are debt free.
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