Hello, Dinks. Some of us still struggle with debt. I’m currently in the process of paying off over $72,000 worth. It’s not a game. I have friends who are in situations worse than me. Have you thought about putting your debt on a diet? As you know, dieting can help you lose a lot of weight. A well-planned budget can help you reduce your debt. In a perfect world, your income would be more than enough to cover all of your debt. Last time I checked, we don’t live in a perfect world. Bummer. Many times a person have more debt than their income. That’s a harsh reality. By setting a budget, you can put your debt on a diet and get rid of those unnecessary expenses.
You should get a pen and a pad because it’s time to work on that budget. You first need to determine how much income you have available. Create a list of your net income which is the money you receive after taxes, insurance and other auto payroll deductions. Next, you should include investments, child support, or other income that you receive. You need to include when and how often you are paid. Get as specific as possible. Estimates won’t work in this case. You should know the exact amount that you are bringing in monthly.
Next, document your monthly expenses including rent, utilities, transportation, entertainment, groceries, etc. If you have credit cards and loans, write down the due dates for each payment. Review your spending activities for the next month. Add anything you might have missed you created your original list. Once you see exactly where your money is going, the next step is to determine what areas you can eliminate some of the expenses. See if you can get cheaper renters or homeowners insurance. Call your different utility companies and see if you can a discount. I do this once or twice a year with my internet and cable providers.
Take the time to check with your bank or credit union and credit card companies to see if you can refinance or consolidate high-interest loans into ones with lower interest rates. If you drive to work, consider using public transportation. Cities like Washington D.C. and Chicago have pretty good public transit systems. The last thing is imperative. That’s to stop spending so much money. There are many ways to get low-cost or no-cost entertainment. You just have to be a little creative or think outside of the box.
Once you have your totals and you’ve eliminated unnecessary expenses, you need to subtract the expenses from the income. This will tell you how much extra income you have left to apply towards reducing your debt. Hopefully, you’re not is the red. If you are, it’s time to find a way to increase your income. Ask your boss for a raise or get a part-time job. You have to generate this extra money so that you can lower that debt.
Once you have that extra money, it’s up to you to figure out how you want to apply it to the debt. You can apply the money to your debt with the highest interest rate, or you can do the debt snowball. It’s up to you. I like seeing small wins, so I’m using the snowball method.
Thanks for the detailed steps Jason – it’s made that much more valuable knowing you are applying this approach yourself. Good luck with your debt down payments and thanks for sharing your personal experience with finances and debt.
Dieting and budgets do have a lot in common – so much of good health care and good financial care have parallels.