In the same way that we gain pounds when we eat too much, our debt also increases when we spend too much (especially when we’re spending money we don’t have readily available). If you’ve got debt that you want to get rid of then you need to take the same approach that you take when you want to see lower numbers on your bathroom scale – you have to go on a debt diet.
Ideally we would all have a household budget that has been planned well and we’ve accounted for our planned – and for some unplanned – spending. However, most of us don’t live in an ideal world.
Sometimes debt can seriously outweigh the money coming in and we end up in a financial mess. Before this happens, we need to take a look at our budgets, and our debts, and make a plan for getting that debt under control and paid off.
Steps to take before going on a debt diet
The first step to take when you need to go on a debt diet is to sit down with either pen and paper or a spreadsheet on your computer. You need to first determine how much money you have coming in every month. This amount should include money you earn from your job. If you’re retired then it should include your monthly pension or retirement accounts that you receive each month. It should also include any other money that comes in regularly including child support, investments, or money from side hustles. Make sure that you’re working with after tax numbers.
You must know exactly how much you have available each and every month.
The next step is to make a list of your monthly expenses. These include rent or mortgage, utilities, transportation, groceries, medical, and entertainment. If you’ve got loans and/or credit cards then you need to list these payments out as well. You need to list out interest rates and due dates as well (so that you don’t end up paying late which is a really bad financial habit).
Once you’ve got a clear picture of exactly where your money is going, you need to figure out where you can make some cuts. In what areas can you eliminate some of the expenses to save money? Are there areas you can completely cut out? Can you get better deals by combining some plans or switching companies?
For example, you may want to look at your insurance policies to see if bundling home and auto policies would save you money. Or would combining your cell phone plan with your internet be cheaper than what you’re already paying?
Now comes the hard part…taking a look at the spending you do that varies from month to month – like your grocery expenses.
This is where you need to take a look at your spending over a period of time and then determine what is a good average to plan for.
It’s also where you need to make some hard decisions about how you’re going to keep this spending contained – especially if you’re an impulse shopper.
Using cash helps keep spending under control
A method we’ve used that has proven to be very helpful is to use cash for some categories of purchases. For example, we pull out a set amount of money for our monthly groceries. We would then take that cash with us to the grocery store along with a calculator. As we’d shop we’d keep a running total of how much we were spending because we knew that when the grocery money for the month was gone, it was gone. This helped us put some purchases into perspective…which also helped us to put some items back on the shelf so that we would have the money later in the month.
Using the cash method kept us from spending more than we had budgeted so that we could save money on groceries.
Another way to help get your debt under control is to see if you can consolidate your debt into one with lower interest rates. But a word of caution here – don’t consolidate your debt and then end up adding more to it. It’s not uncommon for people to combine the debt from several credit cards on to one card…and then to go out and put more purchases on the now freed-up cards.
You can also take a look at your budget to determine what other expenses you can cut. Do you really need three streaming services to watch television? Can you plan for cheap and easy meals so that you don’t end up going out so often?
The key is that you have to stop spending money. And where you must spend money, you need to strive to spend as little as possible. So yes, turn off the lights when you leave a room. Adjust the thermostat so that your utility bill is smaller. Get creative.
Now that you’ve figured out your total income and expenses (and eliminated unnecessary expenses) you can figure out how much money you have left to apply towards reducing your debt.
What if I don’t have any money to put towards eliminating my debt?
If you find out that you truly don’t have any money leftover, then it’s time to figure out what you can do to bring in some more money for a while. Perhaps a second part-time job is called for or selling some things around the house that you no longer need. Or maybe it’s time to start a side hustle you can do after hours to bring in some more cash.
Apply the extra money to your debt that has the highest interest rate, and be sure to pay as much more than the minimum payment as you can. This will help reduce the principle amount that you owe and keep your money from going towards paying interest…which doesn’t help reduce the debt.
Once you’ve got one bill paid off, repeat the process on the next highest interest bill and keep doing this until all the debts are paid off. Yes it may take some time but it’s worth getting that debt eliminated.
The most important thing to remember is that you need to be patient, consistent, and realistic. You need a budget that you can live with and that lets you pay your bills and save some money. You’ll want to get to the point where you have money set aside for emergencies as well as for planned rewards.
Persistence now will pay off later in terms of more financial freedom.