If you’re struggling under a pile of debt, it can be hard to see the light at the end of the tunnel. No matter how you look at it, your income is not covering your expenses plus your interest repayment, and something has to give.
There is no one-size-fits-all approach to getting out of debt. The best way is usually a many-pronged approach, which involves cubing unhelpful spending habits and making positive changes in a few different areas of your finances.
Before you despair of your situation, try these strategies to find some balance in your financial life and start moving forward. Who knows—once you find your way out of debt, you may start to discover simple ways to grow your savings every day.
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Establish Ground Zero
The first step to getting rid of debt is getting a clear picture of where you’re currently at in terms of financial health. Right, we know it’s bad… but how bad exactly? And why? Now is not the time to hide from your bank balance or kid yourself about your spending habits. If you’re going to get your finances back in order, now is the time to recognise the importance of Fiscal Responsibility: It Could Improve Your Financial Present And Future. Yes, really.
While the idea of fiscal responsibility may sound scary, it basically means getting your financial ducks in a row. And that’s not too hard to do, if you take things step by step. While you may think that you should focus on paying your debts now and deal with creating better spending habits later, it’s crucial to acknowledge that you will never be effective in paying off your debts unless you start spending wisely and saving effectively first.
Track Your Spending
Begin by tracking your earnings and outgoings to understand what proportion of your income is being spent on things such as rent/mortgage repayments, groceries, bus fares, education and leisure. A good old spreadsheet is always a good bet, but there are other options if you prefer something more intuitive. You could download a spending tracker app or check out your bank’s online banking interface, as many will be able to give you a breakdown of your spending every month—graphs, pie charts, the works!
The Devil is in the Detail
When it comes to tracking your outgoings, remember that the devil is in the details. Don’t fall into the trap of thinking that only big spends matter, and letting yourself forget to track the smaller expenses. On the contrary, it’s those seemingly insignificant but regular expenses (a coffee and a muffin on your way to work every morning) that can add up frighteningly quickly and throw an enormous spanner in the works when it comes to the end of the month. If you’re going to track your spending, it’s well worth your while to commit to tracking every cent you spend, at least until you have a clear picture of your situation.
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Study Your Credit Card Statements
Once you’ve got your spending tracking going, it’s time to fish out your credit card bills and study them closely. This won’t be pleasant, but this is no time to hide from the truth. If a quick glance at your credit card bill reveals that you’re living beyond your means, a “necessity score” system can be useful to help you parse the situation. The idea behind this is to assign everything that you’re purchasing on credit a score that will help you see a clearer picture of where your habits are leading you astray.
A necessity score of one means that the item on your statement is an unnecessary extravagance. On the other end of the scale, a score of five means that the item is an essential expense. For example, a new pair of shoes to wear to a party is probably going to be a 1 or 2, depending on how you look at it (spending priorities are always subjective, and it really comes down to what matters to you—the main thing is that you understand your choices). If you had to pay for your prescription medication on your credit card, that would count as a 5, which indicates that you sometimes have to dip into debt in order to cover something crucial. After a while, you will start naturally using this scoring system before you decide to use your credit card, which will empower you to understand why you’re going into debt before you swipe the card.
Pay Down Expensive Debts First
One of the most intelligent and easy to apply pieces of wisdom in the world of debt management is to start by reducing all your monthly debt repayments to the absolute minimum amount you can get away with. That is, except the biggest debt. Whether it’s a credit card you’ve maxed out or a student loan racking up interest, choose the single most expensive debt (in terms of interest, stringent repayment schedules, and lost sleep) and pour all of your resources into it. When you’re paying off one debt in a focused way, you’ll be amazed at how quickly you can zap that debt and be done with it for good. Phew!
Once your biggest, nastiest, most sleep-costing debt is done and dusted, redirect all of the funds that you were funneling into that black hole, and start working on getting your next largest debt down to nothing. Soon you’ll be done with that one, too. Breathe a big sigh of relief, but don’t get complacent at this point: immediately start with your next debt, and move down the list in this way, zapping the worst debt, and moving on to the next. One of the best things about this approach to debt management is that you get to witness real progress being made really quickly. You know how satisfying it is to tick items off a to-do list? Well, that’s nothing compared to ticking debts off your hit-list. Crossing off that last debt is sure to give you a new lease on life.
Start a Side Hustle
If you have a special skill outside of your day job, you might be able to create new opportunities for yourself to earn a little extra money and get rid of your debts quicker. Turning your hobby into a job can seem a little cynical, and many people resist it unless they have a good reason, but isn’t debt a great reason to take the plunge? Many people who end up working for themselves, with flourishing businesses doing what they love, credit an urgent financial crisis as the event that gave them the motivation to finally start spending more time and resources on an activity they enjoyed.
Side hustle ideas have proliferated on the internet, but the best place to look is inwards: what do you have to offer the world that is unique? An effective side hustle will draw on your natural talents and your skillset. If you’re a fantastic visual artist, start by designing logos or graphics for your friends' businesses, or join a freelancers platform to tap into a global client-pool. If you’re a gifted cook, you might try offering cookery classes after hours and during weekends. The first step is to ask yourself what you’re good at and what you love to do.
When debts start adding up, it can be hard to see the wood for the trees. But you needn’t let this situation get the better of you. These tips will help you keep calm and carry on moving onward and upward.