Managing your monthly budget and balancing how to pay off debt at the same time can become tricky and overwhelming. The good news is that there are ways to shave off your debt while still paying your bills, even if you’re living paycheck to paycheck.
Did you know that America’s consumer debt is at $14.9 trillion (including mortgages, credit cards, auto loans and student loans)? By practicing some of the following recommendations for how to pay off debt even while on a tight budget, you can help to chip away at this huge figure on a personal level. (removed “and national”)
What Living Paycheck to Paycheck Means
When you make just enough money to cover the bills, or at least the bills plus the minimum required debt payments, as you wait for your next paycheck, then you know what living paycheck to paycheck means.
By making only the minimum payments on your debts, you will not substantially reduce the amount you owe as most of your minimum payment goes to paying interest. Each month, this will result in adding on more debt to your name. So, you become stuck in a cycle where you don’t have enough money to pay existing debts, and therefore, you keep accumulating more debt.
It’s very important to break the cycle and reduce the principal amount of what you owe, so that your paycheck isn’t being used to pay interest continuously. Sure, this may seem easier said than done. But, that’s why we’ve put together a plan of attack.
Keep on reading.
How to Pay Off Your Debt (While on a Tight Budget)
Now, here’s the goodness you’ve been waiting for.
Take a look at these tips and tricks to help you pay off your debt:
- Create a Zero Sum Budget
One of the most important steps you can take in managing your money is actually monitoring where it goes. This can be done by creating a budget.
Begin by listing your expenses and debts. In order to achieve zero sum budgeting, you’ll leave no penny unused, hence the term “zero sum.” Allocate your income to expenses, debts, and savings. If there isn’t enough money to cover expenses and debts, try to cut down your expenses by removing extras like entertainment. It’s more important to focus on reducing debt and investing money whenever possible.
- Cut Unnecessary Spending
Cutting down expenses can be a challenging hurdle. However, there are many ways to lessen your spending. It helps to categorize your expenses first to see what categories are using up most of your funds. This will help lead you to where you need to focus so you can trim down your expenses.
Consider these suggestions:
- If household items that don’t expire are on sale, purchase in bulk and use them over time
- Search for coupons for anything you purchase
- Eat out less
- Get rid of subscription services or call your providers to see if lower rates are available for essentials
- Make your own coffee rather than buying a cup a day
- If it’s possible, get rid of your car or drive less (to save on gas) while choosing alternative modes of transportation including: public transportation, walking, biking, etc.
- Prioritize Paying Off Debt (Two Proven Methods)
Paying the minimum payment seems enticing because it is lower than your balance, but that’s the hook that can cost you more money in the long run. By continuing to pay the minimum amount due every time, you are not reducing the debt by a meaningful amount.
In order to get out of this vicious cycle, be sure to pay over the minimum amount. You may not be able to do this for every bill you owe, but you can start by choosing one and paying the minimum amount on your other bills in the meantime.
There are a few methods for choosing where to begin, and they even have adventurous names. Before you choose your preferred method, run a free credit report so you can itemize all your debt.
The Avalanche Method (also known as the ladder) goes as follows: Choose your highest interest rate account and begin paying that one off. Then, move down to the next “rung of the ladder” and cover the payments to the account with the second highest rate. Continue this process until you’ve zeroed out your funds. This option will save you money in the long-run because you are eliminating your highest interest debt first.
Alternatively, you can use the Snowball Method. This works the opposite way, like a snowball that starts small, rolls down a hill, and collects more snow (and momentum) along the way. Here, you begin with the smallest debt and work on up. While this option is less of a financial approach as you may pay more in interest over time, it’s all about the psychological effects of accomplishing the goal and gaining momentum to stay on track.
Only you know what method is more aligned with your train of thought and needs. Either way, you’ll have a solid strategy to get rid of your debt by getting started with one.
- Increase Your Income
It may seem obvious, but increasing your income will help you get out of debt faster. If you’ve tried everything else and your income still isn’t covering your needs, then reconsider your line of work. Or, if you’re happy in your line of work, see if you can add additional income to your monthly cash flow by taking on side projects.
5. Leverage Software
From creating a budget to itemizing expenses, a paper and pen can do the job, but this old school approach can become messy quickly. Instead, try out a free accounting/budgeting software, which will help you to visualize your money. For example, you can try Mint from Intuit, the creators of Quickbooks and TurboTax, which is an online budget planner.
6. Have a Support Person
Managing money is often an emotional undertaking. While it may seem trivial, having a support person along your debt-repayment journey can make all the difference. Pick a friend or family member, or anyone you trust, to hold you accountable for the goals you set. They’ll also be able to celebrate with you when you get out of debt.
7. Get Help
It may be the case that you need cash quickly between paychecks. Cash Factory USA payday and installment loans can provide you short or long-term loans that can be deposited into your checking account. It’s not the best idea to rely on this to pay off your debt as it is still a loan, but if you find yourself in a bind or emergency where you need cash fast and your paycheck is days or weeks away, then it is a good option to have. Find out if you qualify by submitting an application. Keep in mind that the use of loans (especially high interest loans) is not a long-term solution.
The Bottom Line
Climbing out of debt can feel like an uphill battle. When you combine the strategies of budgeting and money management with a positive outlook about your situation, then you can definitely achieve this feat.
Knowing how to get out of debt while living paycheck to paycheck will be liberating as you reach each milestone. Keep your head up, and never be afraid to ask for help (this includes contacting your credit card company to work out a payment plan or seeing if they are able to reduce your debt with debt forgiveness).
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