Falling behind on your credit card and loan payments can leave you feeling powerless, but with some debt reduction tips and by adopting good budgeting habits, you will be able to eliminate debt and become financially free.
The first thing you should do to reduce your debt is to assess your financial situation and put all your debts in writing. Most of us tend to guesstimate the amount of debt owing and how much we earn each month, which can cause us to live – and spend – beyond our means. So, it’s important to be honest with yourself because you’ll never hit your target if you don’t know where it is.
By listing out all your debts in addition to your income sources, you’ll have a realistic picture of your financial situation. Organizing debt can be an eye-opening – and humbling – exercise, but once you know how much you owe and to whom, you’ll be in a better position to tackle your debt problems.
If you have a fairly large amount of debt, you can look into lowering your interest rates on some of your high interest debts by negotiating a rate reduction with your creditors.
You can also consider getting a debt consolidation loan from a lending institution, which will help lower your interest payments. The loan will enable you to repay all your debts at once, and you’ll only have to make one monthly payment, often at a lower interest rate than what you are currently paying. Not only will this save you money on interest, but it also allows you to keep better track of your debt repayments.
Once you have an accurate picture of your financial situation, it’s time to create a budget, which is the foundation of a reliable debt reduction plan.
To help with creating your budget, track your spending for about a month by writing down all your expenses. Make sure you track both your fixed expenses (mortgage, rent, utilities, car payments) and your variable expenses (entertainment, groceries, eating out). By watching where your money is spent, you’ll be able to see where it’s going and you’ll quickly figure out if you’re living within your means.
As you drop the totals for the expenses you’ve tracked into your budget, you’ll see if all of your income sources are enough to cover your expenses, debt payments, plus allow a small cushion in case of emergencies. If not, you’ll have to whittle down your expenses, such as eating out, daily coffees, or that expensive phone plan. You’ll have to make some sacrifices, but don’t deprive yourself.
While you’re creating a spending plan, it’s also important to set aside enough money for an emergency fund. You can contribute as little as IDR 50.000 or as much IDR 500.000, but it’s important that you have some cash reserves so you don’t turn to credit if an unexpected emergency – such as a car repair, job loss, or an illness – come up.
And in terms of debt payments, make sure you’re avoiding the “minimum payment trap.” If you’re only paying the minimum amount, you’ll never eliminate debt.
Once you’ve identified the debts you want to target first, a budgeting strategy.
Spreadsheet budgeting. This method requires that you input your spending into a spreadsheet every time you make a purchase.
While it can be labor-intensive to track your spending, using a debt payoff template can give you a better idea of exactly where your money goes every month.
You might find that you’re overspending on online shopping purchases that aren’t entirely necessary, or that you’re spending more on groceries than you had budgeted for.
Even if you just do it for a few months, a debt payoff template spreadsheet can shine a light on how you spend your income so you can set a realistic debt repayment schedule.
If you have extra time, taking on a side hustle can help you pay off your debts faster. In fact, side hustles are becoming common among Americans trying to keep up with inflation.
To make extra money, you don’t have to leave your home. There are plenty of side hustles that allow you to work from home — such as online tutoring, user testing and audio transcription — as long as you have access to the internet and a computer.
However, as you search for extra money making ventures, beware of money-making scams posing as legitimate jobs.
While you’re trying to get out of debt, it’s important that you set some financial goals for yourself. Having financial goals may be the furthest thing from your mind, but you’ll be better prepared to weather the worst if you plan for the best. So whether it’s saving for a down payment on a house or going on a vacation, set some goals for yourself and stay focused.
It’s also important to set achievable milestones for your debt repayment, and to celebrate those milestones once you’ve reached them. For example, to celebrate paying IDR 1.000.000 off your credit card, treat yourself to a nice dinner. Do things that are important to you, but won’t put you back in debt. Having these milestones gives you something to look forward to, and keeps you motivated to reach your goals.
Another important part of your debt reduction program is to track your progress. While you certainly don’t want to fret over bills every day, it’s important to keep an eye on your spending and to revisit your budget every now and then. Our financial situation can change, and it’s important that our budgets reflect that. If you get a raise, use the extra money to bump up your debt payments. Or, if you find yourself with reduced income, you may have to cut back on expenses or scale back your debt payments so you can meet your basic needs like food and rent.
Becoming debt free takes time and effort, and the determination to stick to a debt reduction plan. Knowing how to budget and how to organize debt are key aspects of getting out of debt, but just as important is to set some financial goals. If you’re having difficulty organizing your debts or sticking to your budget, you can look into non-profit credit counselling.
While it can be labor-intensive to track your spending, using a debt payoff template can give you a better idea of exactly where your money goes every month.
You might find that you’re overspending on online shopping purchases that aren’t entirely necessary, or that you’re spending more on groceries than you had budgeted for.
Even if you just do it for a few months, a debt payoff template spreadsheet can shine a light on how you spend your income so you can set a realistic debt repayment schedule.
If you have extra time, taking on a side hustle can help you pay off your debts faster. In fact, side hustles are becoming common among Americans trying to keep up with inflation.
To make extra money, you don’t have to leave your home. There are plenty of side hustles that allow you to work from home — such as online tutoring, user testing and audio transcription — as long as you have access to the internet and a computer.
However, as you search for extra money making ventures, beware of money-making scams posing as legitimate jobs.
While you’re trying to get out of debt, it’s important that you set some financial goals for yourself. Having financial goals may be the furthest thing from your mind, but you’ll be better prepared to weather the worst if you plan for the best. So whether it’s saving for a down payment on a house or going on a vacation, set some goals for yourself and stay focused.
It’s also important to set achievable milestones for your debt repayment, and to celebrate those milestones once you’ve reached them. For example, to celebrate paying IDR 1.000.000 off your credit card, treat yourself to a nice dinner. Do things that are important to you, but won’t put you back in debt. Having these milestones gives you something to look forward to, and keeps you motivated to reach your goals.
Another important part of your debt reduction program is to track your progress. While you certainly don’t want to fret over bills every day, it’s important to keep an eye on your spending and to revisit your budget every now and then. Our financial situation can change, and it’s important that our budgets reflect that. If you get a raise, use the extra money to bump up your debt payments. Or, if you find yourself with reduced income, you may have to cut back on expenses or scale back your debt payments so you can meet your basic needs like food and rent.
Becoming debt free takes time and effort, and the determination to stick to a debt reduction plan. Knowing how to budget and how to organize debt are key aspects of getting out of debt, but just as important is to set some financial goals. If you’re having difficulty organizing your debts or sticking to your budget, you can look into non-profit credit counselling.
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