Is debt constantly on your mind? Owing money can be extremely overwhelming. Especially when you’re not sure where the money is going to come from to pay it off. You work hard, but your bills just keep piling up. When it gets to a certain point, your debt can feel as though it’s taking control of your entire life. But there is a way to take back that control, and it doesn’t necessarily mean you need to have all the money upfront to pay off your debt.
That’s right. Having the funds to pay off your debt is important. However, there are other more important components you need to understand so you can effectively pay off your debt. In fact, you can even save yourself money in the process.
What do you need, aside from money to eliminate your debt?
You need an understanding of your debt
Before we jump in, the first thing you need to do is understand your debt. It’s time to put your finances under the microscope and come face-to-face with your debt. Ask yourself the tough questions you’ve been avoiding like:
- Where is your debt coming from?
- How did you get into debt?
- How much debt do I have in total?
Regardless of how or how much debt you are in, don’t let it overwhelm you. Instead of focusing on what is wrong, think about how you are going to fix the problem. It’s important to do this step before your debt becomes completely unmanageable. The earlier you take action against your debt, the better. Debt isn’t one of those problems that you sweep under the rug and expect to disappear.
Start by writing down a list of all your debt. Where your debt is coming from, how much you owe, and the minimum payments you make each month. Then, change your perspective. Don’t view your list of debt as something you should avoid and ignore. Make it your primary financial goal to pay it off and eliminate it for good.
You need a budget
Once you have a deeper understanding of your debt, it’s time to evaluate where your income or rather your money is going. Start by looking at your monthly bank statements and what your money is being spent on. A great way of doing this is by sorting your expenses into a few different categories. For example, yours may look something like this:
- Debt payments
- Monthly bills
- Recreational expenses
For each charge on your statement, ask yourself if the purchase was a necessity or not. If you’re calling yourself ‘broke’ after spending your income on nonessential purchases, then you’re not actually broke.
On average, about 50% of your income should be going towards the necessities. If more than 30% of your income is going towards your ‘wants’ or more recreational purchases, you need to create a budget for yourself. You’ll need to carefully review where you are spending your money and how you can cut down on your expenses. Until you can lower your debts, try to keep your nonessential purchases to a minimum and using that money towards your debt instead of buying things you don’t need.
Remember, you’re not just cutting expenses for the heck of it. You’re doing this to free up more money to go towards your debt. Even the smallest budget cuts can add up, so be mindful of how you are spending your money. In this case, every penny does count. If you’re deciding between going out for a fancy dinner or making something at home, choose the latter.
More importantly, you need to stop adding to your debt as well. Seems obvious enough but, it can be harder than you think. If you are continually adding to your credit card balances, you will never get out of debt. For example, if you have high credit card bills, but you continue using your credit cards. Stop using your credit cards where you can and focus on paying down the balances you owe before spending more.
A great method you can use to help you budget is the 50/30/20 rule. 50% of your expenses should go towards your needs, 30% towards your wants, and 20% should go towards paying down your debts.
You need a plan
Now that we have an understanding of our debt and we’ve set a budget for ourselves. The next step is to create a plan. No matter how much you owe, how much of an income you have, or how much you have saved, you need to come up with a plan to eliminate your debt.
One way you can start is by organizing your debts in order of priority. For instance, you can arrange them from highest to lowest interest rate. Or you can order them from the highest amount owed to the lowest. The plan is to pay off as much as you can afford on one account while paying the minimum on all the other accounts. Overall, you want to make sure that whatever plan you come up with, you are not missing payments and you’re meeting all your financial obligations without any strain.
There are many different methods you can use to pay off your debt. Depending on how much debt you owe, your options may vary. You can opt for a debt restructuring plan as well, which you can learn more about by clicking here.
To help you decide what option works best for your specific situation, call 4 Pillars for a free consultation. We can help you understand your debt, recommend options for you – some that you might not even have thought of yet – to eliminate your debt, and come up with the right long term plan for you. Once we come up with a plan together, you can complete it and you’ll be saying sayonara to your debt in no time. A debt-free life is possible. To get started, book your free consultation with us today. We have three offices across Northern Ontario and we are only a phone call away. You can reach our Muskoka & Parry Sound office at 705-640-0187, our North Bay office at 705-980-0158, or our Sudbury office at 705-806-1252.
Whatever your debt-free journey looks like, remember to take it one step at a time and that you are not alone. Debt repayment doesn’t happen overnight, but it can happen faster with the support of the right team on your side.