You would like to get out of debt, right? Of course, you would. But if you’re struggling with debt it’s probably due to overspending in three categories: 1) too much house, 2) too much car, 3): too much entertainment.
If you truly want to get out of debt, the first thing you need to do is take a hard look at your spending in these three categories. If you’re not sure of your spending in these categories, you need to track your spending for at least a month. A number of free apps are available that make this drop-dead simple. Three of the more popular of these are Mint, Xpenser, and Pennies.
Be prepared to sacrifice
Reducing your spending in the three categories mentioned above won’t be easy. It can be especially hard if your problem is too much house. This means either finding a cheaper place to rent or worse, yet selling your home and buying a less expensive one. It can also be hard to reduce how much you spend on your car or cars. You might have to sell your current vehicle and buy something cheaper. You might feel great driving around in that Lexus SUV but it could feel even greater to drive around in a car where the payment was less than $100 a month. It might feel even better if you could pay cash for that cheaper car.
The easiest area to reduce your spending is on entertainment. The simple answer to this is just don’t go out so much and don’t eat out so often. You also may find you’re spending a lot more than you thought on just the “little” things like that drive-through latte you get every morning.
Have a goal
It’s practically impossible to save money unless you have a good reason to do so. This means having a worthwhile goal. In this case, it will be to get out of debt. Other times it might be to create an emergency fund or to save up enough to make a down payment on a house. Then, whenever you get the urge to go out for dinner or to buy that great sweater, take a minute to remind yourself that if you spend the money, you will be that amount further away from becoming debt free.
This is where a budget can help. Mint is a great budgeting tool as is HomeBudget with Sync and Spendbook. In fact, if you are committed to becoming debt free, you must have a budget. Even more important, you need to stick to it, and this is where the self-discipline comes in. No budget can help you take control of your money if you’re constantly busting it.
If you just can’t stand the idea of making a budget, there’s an easier solution. It’s using the 50/30/20 rule of thumb.
The way this works is that you dedicate 50% of your net pay to your “needs.” This could include your rent or mortgage payment, automobile payment, utilities, groceries, and health insurance. In other words, those things you absolutely need. The 30% is for your “wants” – dinner at that great Italian restaurant, those fabulous shoes, or a weekend in the mountains. Last, is the 20% which is the percentage of your net pay you should save and use to pay down your debts.
Learn to live on one income
Two may not be able to live as cheaply as one, but if there are two of you, and you can live on just one income, you can become debt free in just a matter of months. Banking one of your incomes could also get you that down payment on a house in just a few years or could allow you to pay cash for a decent car. This should also mean money you could stick away in an IRA. If your employer offers a 401(k), you could increase your contribution, which could mean retirement sooner rather than later.
Consider settling your debts
You might also consider settling your debts. This is a process where you contact a lender and offer to pay a lump sum for less than the debt’s balance. Some people have been able to settle their debts for 50% or 40% of their balances. This, in fact, is the only way to pay off debts for less than you owe. However, you need to have the cash available to make those lump-sum payments, and you need to be a very good negotiator. This is wy many people turn to a professional debt settlement company like National Debt Relief. This eliminates the need to have money for lump sum payments, and the company does all the negotiating for you.
Getting out of debt isn’t easy. But if you’re committed to the idea, you can do it. Just follow the advice you’ve read in this article, reduce your spending, use some self-discipline, and you could be debt-free in just a few years.