However, there are many success stories out there of individuals deeply in debt who were able to pull themselves out of a hole by making simple changes to their lifestyle. I will outline three simple steps that will help you live debt- free.
Lose the Luxuries
In my last blog, I touched on the importance of making budget cuts. If you spend more than you make, you will always be in debt. To be debt-free, something’s got to give. The good news is there is an abundance of resources available to help you stay on track. (Check out the article below for free budgeting tools). Make your budget as bare bones as possible. So, while it’s nice to have a cable package with premium channels or enjoy date nights out with your significant other, these things are not necessities. Get back to the basics (like food, clothing, shelter)! Take a very realistic look at your spending habits and future goals and ask yourself this question: “Is this purchase worth giving up (whatever your future goals are)?
Before you start getting down about all the things you’re giving up, let me assure you that living on a budget does not have to be miserable! You don’t have cable at home to watch the game? Go to a friend’s house and spend some time catching up with them. Is going out to dinner too pricey? Impress your new boo with your cooking skills. You can’t afford to buy for favorite beauty items? Now is a great time to try out some DIY beauty recipes.
Make Money Saving Swaps
Once you get down to the essentials, you may still find yourself spending a lot. This is when you should start making “smart swaps”. For example, if you have Verizon (or another major carrier), you’re spending around $150/month for two phone lines with talk, text and web. That same plan on Walmart Family Mobile is only $55/month. That would save you over $1,000 a year. But that’s just the beginning…Switch your expensive cable for Netflix or Hulu. Ditch your expensive barber or stylist for a low cost barber/beauty school. In lieu of high-end stores, shop at Plato’s Closet. From trying a different cereal at the grocery store to car pooling with a co-worker, there are money saving swaps all around you! Branch out and try something new. You may discover a diamond in the rough and save a boatload of cash in the process!
Prioritize Payments & Bargain for Benefits
Now, you are on track to avoid debt in the future! But what about the debt that you already have? There are several strategies to help you, but they all boil down to this: prioritize and negotiate.
Prioritize: There are several well-known methods for prioritizing payments. One is the “snowball” method. Order your debts from smallest balance to largest. You send only the minimum payment to all of your debts, except for the smallest balance. The smallest debt will receive all the extra money you can afford to send. Continue until the smallest balance is paid off. Then move on to the next. The benefit of this method is that the smallest balance is the easiest to conquer.
Another way is the “interest rate” method. Order all of your bills from highest interest rate to lowest. Follow the same process above, focusing on the highest interest rate. The benefit of this method is that the highest interest rate (which costs to most to finance) will be gone first.
Negotiate: Creditor can be pretty intimidating. We have all heard the horror stories but those stories are the exception, not the rule! Creditors are running a business and like any other business, they want to get paid. Most creditors have flexibility on their terms and are open to negotiate. They don’t want to walk away empty-handed which puts you in a great position to negotiate. You are your own best advocate, so don’t be afraid to fight for yourself. Call the creditors and ask for a lower interest rate and a more convenient payment date. Promise to pay the balance in full in exchange for a lower settlement amount. If the agent seems unwilling to help, escalate to a supervisor who has the authority to make those decisions.
Most importantly, remember there is hope! “The longest journey begins with a single step”, so take that step today!
7 Simple and Free Budgeting Tools