7 Ways to Get Out of Debt, Save and Do More Than Survive
According to the Federal Reserve Board, the total household debt at the end of the third quarter in 2016 was $12.35 trillion, an increase of $63 billion over the previous quarter. Most of the debt was from mortgages, followed closely by student loans, automobile loans and credit cards. An overwhelming debt load can easily place you in the cycle of living from paycheck to paycheck, with no visible exit in sight. But even unexpected expenses, such as a medical emergency, can quickly derail the best of intentions to be fiscally sound. In fact polls indicate that approximately 45% of Americans are living paycheck to paycheck, even with decent salaries.
Here are 7 tips to help you get out of the paycheck to paycheck, debt-driven cycle.
- Dream. Yes, even if your financial situation is difficult, the best way to develop a budget that you will stick to is to allow yourself to dream about a life free of debt. Take the time to think about what is important in your life; what are your future goals; what will it take to get there. Give yourself license to develop a budget that is based on joy rather than penalties. You are much more likely to develop the discipline necessary to cut down on spending, reduce your loan burdens and get rid of credit card debt if you are doing it from a place of personal life goals that are so important to you that you are willing do what it takes to achieve them. When you prepare your budget, write your vision statement at the top and keep this in focus each time you review the budget to assess your progress.
- Switch to cash. One of the dangers of credit cards is that you don’t actually feel or see the money you are spending. To the extent possible, try to pay everything with cash. Once you have your paycheck, withdraw the amount you have budgeted for various categories, and put it into marked envelopes. Once the envelope is empty, that’s it…no more spending on that item or activity. This will also help you to track your spending, one of the primary reasons people find themselves living paycheck to paycheck—they have no idea where money is going. For online spending, there are digital platforms that mimic this system.
- Put each month’s leftovers toward debt reduction. Regardless of whether your income increases in a certain month, or your budgeted monthly expenses decrease, at the end of each month, take the money you have leftover and put it toward your credit card or other debt.
- Organize. One of the easiest and yet most often overlooked strategies for managing your finances and eliminating stress is organization. Use digital platforms to help you keep track of your bills and statements. FileThis, for instance, can be linked to all of your online accounts to give you an overview of each account, download statements and alert you to upcoming due-dates. Anything you are doing online can by synced to this platform. If you are not so digitally inclined, then set up a manual filing system, keep all of your account statements in files, when a bill arrives, place it right away into a “to be paid file” and set a date on your calendar for paying bills.
- Trim expenses. Once you have everything organized, you will have a clearer picture of where your money is going each month. You might be surprised. To get out of the cycle of living paycheck to paycheck, you will need to go on a short-term diet—a spending diet. With your life goals in mind, take an honest look at some of your out-of-pocket expenses and re-evaluate if these activities are really so important. For instance, to achieve your dream of owning your own house, going on a vacation, getting married, re-locating—whatever it is that you set for yourself, can you skip the daily Starbucks or other coffee café? Or lunches out? Or entertainment? Look for free things to do, use coupons, and treat yourself to a night out at the end of the month to celebrate your financial accomplishments.
- Set small goals. If you are living paycheck to paycheck, the idea of saving $10,000 is impossible. Begin instead with $100 – $500. Do the same with your debt. For instance, begin with the credit card that has the smallest balance or the one with the highest interest rate. The point is go from card to card, paying off one completely and then moving on.
- Freelance. Assuming you do not have an onerous work schedule, look for a side job to increase your income. Take this income and use it to pay down your debt and build up your savings account, especially an emergency reserve. There are many freelance employment opportunities today, and we discussed some of them in a previous article.