This is a question that I get a lot, “How do I save, maintain my monthly expenses, and paydown debt at the same time! When you are drowning in debt while trying to pay your monthly bills it can seem like an impossible task to keep your head above water and saving seems out of the question! I know many have trouble prioritizing what to they should be paying first or if they should be saving at all while in debt. Sometimes it can be discouraging getting advice to just “budget” and “cut back your expenses” especially from people whose financial situation may be a lot different from yours. I hear “online financial experts” giving advice to “pay more than minimum payment on your credit cards” as an answer to paying down debt but how is this plausible for someone who can barely afford the minimum payment!
So can you do all Three?
The truth is it is difficult to do all three on a tight budget. Trying to do so without addressing your financial constraints is like chasing your tail. To get to a point where you are able to do all three you will have to break your budget down first to get a visual of how much money you have coming in versus how much is going out. Then you will have to add up all of your debt to create a reasonable plan to pay it down without it interfering with your regular monthly bills and savings. It’s a tough task and unfortunately there are no shortcuts.
Creating A Budget
To get your finances in order you will have to create a budget. Not an ideal of what you envision your budget to debut a realistic snapshot of what you actually have going out and what is coming in! List your household bills and necessities first and then list any loans or credit card accounts that are currently open (do not list any closed accounts or collections yet). Next, you will list your wants; things that are important to you but you can definitely live without if need be. Again, be very truthful. Make sure you list your expenses for what they currently are, not what you project them to be. If you find that you are over budget then here are some steps you will need to take immediately!
Look for ways you can decrease your bills. If you are paying a high cell phone bill, you may have to downgrade your plan. Also, cut out cable if you have not already! If you are over budget and still have cable, this should be the first to go! You may also have to look for ways to decrease grooming expenses. Maybe opt for a cheap manicure/pedicure or stretch out haircuts. Hey, it isn’t going to be fun getting your budget under control but you will have to make certain sacrifice if you are serious about getting yourself out of debt.
Increase Your Income
Look in to ways to increase your income. If your job offers overtime, you need to take advantage of this immediately! If you are unable to work extra hours or pick up a second job then look into some alternative side hustles. Uber And Lyft are excellent ways to bring in extra income while working around your schedule. There are also reputable work from home opportunities that you may be able to take advantage of. Look into all of your options to increase your income to cover any deficit you have in your budget.
Use The Envelope Method
Start using the envelope method. This is something that I use and I love how it prevents us from going over our weekly budget. After paying our monthly bills, we take the remaining cash out for expenses such as grooming, gas,groceries,entertainment, etc. We have an envelope for each expense and fill them with the allotted amount. Once our entertainment envelope is depleted,that is it. This method has prevented us from overspending and has helped us tremendously. Being very deliberate with your spending will help you get back on track financially and allow you to dig your way out of debt!
Tackle Your Debt
So you have loans and credit cards that you have fallen behind on or maybe even collections on your credit report and you would like to start paying them off so you can get back on track financially. This is very admirable but to be honest,once a loan, credit card, or an account is closed, charged off, or sent to collections, it should not be a priority especially if you are struggling financially.
While you are behind on your bills, you have to forget about your credit! Yes, you heard right, stop worrying about your credit score! Your main priority is to get financially stable and you cannot do that trying to repair your credit when you do not have the resources. Do not put extra money on your credit card to get it paid off sooner when this will put you behind on another bill. Do not worry about paying off the collection item if will cause you to fall behind financially. Take these steps instead to work towards paying off your debt.
Tally Up Your Debt
Yes, it can be difficult looking at the final number, but it is your debt so you’ll need to own it! Avoidance will not make it go away! Tally up all of your debt so that you have a clear figure on what you’ll need to pay.
If your credit card or loan account is not yet closed but you’re just behind, call the lenderand make a reasonable payment plan that will bring you current. Some loan companies will adjust your loan payment and move it to the end of your loan to bring you current without you having to make a payment at the time. Talk to them, be honest about your financial situation, and set something that is affordable for you. Take advantage of any resources your lender has to help you catch up such as payment deferments.
Negotiate your Debt
Next, look into your closed accounts and collections. If your budget permits, you can call the collection agencies or creditors to work out an affordable payment option. When an account is in collections they will usually take whatever you offer; negotiate the most affordable payment option for you! Remember don’t overextend yourself.
You paying these debts should never come at the expense of your regular monthly expenses or your savings. Although it may bother you, the accounts are already closed and if you are unable to pay those accounts then you will have to put them on the back burner until you are able to do so.
Use Lump Sum Cash to Pay Debt
Income tax season is the perfect time to pay off debt for those getting a refund. Its one time during the year that many have a good amount of money at one time and usually it isn’t reserved for anything. Sure, it may be difficult seeing the money go (especially when you have already planned your trip to Miami in your head with those funds) but it will allow you to set yourself up for a better year financially being able to pay down debt! This works with any lump sum payment you receive.
Saving while in Debt!
Everyone whoknows me knows that I am a firm believer in saving at least 10% of your pay nomatter the circumstances. When I was introduced to this concept, ourbudget was extremely tight and I will admit, I did not think it was possiblefor us. However, I started looking at it as one of my requiredexpenses. What would I do if this were something that had to be paid? Iwould find a way just as we have found a way for our other expenses.
Another reason why it is extremely important to save, even at the expense of not paying off debt, is to accumulate an emergency fund! This is something that is important to any budget and it can prevent you from actually sinking into more debt! So yes, make saving apart of your budget, even if you are in debt. Saving for an unexpected expense can ensure you are not in a position to get into more debt to recover from those expenses and keep you on the path of financial recovery.
Remember, its a Marathon
The most important thing to remember when trying to recover from debt is that it is not a sprint. It will not be an overnight process and you cannot continue to ignore the root of your financial issues while simultaneously attempting to payoff debt, save money, and maintain your monthly expenses. You have to address why you were in debt in the first place, resolve that issue by cutting expenses, budgeting, and increasing your income, while coming up with a manageable debt repayment plan. Trying to overextend yourself financially just to quickly pay down debt when you aren’t yet in a position to will lead you back to the same vicious cycle.
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