There are plenty of different ways to pay down debt, and creating a strict budget that only allows you the necessities is not for everyone. It can be difficult to sustain over a long time, but if you are the kind of person who thrives on setting a hard challenge for yourself, you might succeed at paying off what you owe quickly.
Know Your Debt
Before you start, you need to know exactly what your debt consists of. This might include student loans, a mortgage, credit card debt, back taxes and medical bills. Think about what you want to pay off quickly and how you want to pay it down.
For example, you may want to try to pay off your credit card and medical bills in a year or two, but for debts that will take longer, such as a mortgage, you will probably need a different strategy.
You may be able to pay off a 30-year mortgage in much less time, but cutting your budget to the bone isn’t the way to do it.
Reduce Your Debt
Before you even start to pay, you might be able to reduce how much you owe. See if you can roll your credit card balances onto a card that offers no interest at all for a limited time. You might be able to refinance your student loans with a private lender.
This could give you a lower interest rate. If not, you might still refinance for a longer-term and get lower monthly payments. This could free up money you could put toward other payments as long as your interest rates remain lower than the ones for debts you are paying off.
Make Your Budget
First, you need to determine the bare minimum amount of money that you need. This will include housing, utilities and food. A common mistake people make when they are creating a tight budget is forgetting about necessities they purchase infrequently, such as laundry detergent or cleaning supplies.
Remember to include gifts for holidays and birthdays if necessary. If you don’t already have an emergency fund, you should keep on building that.
You may want to trade in your car for a bus ticket or a bicycle and consider getting a roommate or moving to a cheaper place. Be realistic about how much you will be able to cut out.
Develop a System
There are a lot of different ways to track your spending and stay on track, from using mostly cash and allowing yourself a certain amount weekly or monthly to using apps that tell you when you’re about to go over your budget.
You should also have a way to track your shrinking debt to help you feel a sense of accomplishment. You may want to build in rewards for yourself although not ones that cost money. If you find yourself struggling with your budget, try to moderate it instead of giving up completely. Consider allowing yourself a night out now and again or even a vacation.