I can’t tell you how many times I struggled to pay rent and all my bills. The truth is, though, that I got myself into that situation.
But, eventually I figured it out. I realized that things had changed. I had responsibilities. I could no longer buy new shoes on a whim. I had to budget it.
Beyond all the change and weird new elements to my financial planning, the things I did to get out of debt, pay rent on time, and ensure my financial freedom for the future were the best thing that has happened to me.
Don’t think of savings
If you’ve got a savings account, you’ll probably earn about 1% interest. If you’ve got $5,000 in the account, that means you make $50 per year. If you’ve got $5,000 in credit card debt (the average credit card interest rate is around 15%), that means you are paying $750 in interest fees per year. Doesn’t it make more sense to knock out that debt and save yourself $700 a year?
If you’ve got savings, save some of it as an emergency fund.
Stop buying everything
I was struggling. I liked to buy things.
So I started cutting my frivolous spending.
I also made sure to save money on as much as I possibly could. I even downgraded on items that I could get money for. For example, I sold my Macbook Pro (retail at around $1,200 for a lower end Mac) for pretty close to retail price and picked up a Lenovo laptop (something cheap here can cost as little as $400). I would also cut coupons and look for specials on things that I regularly bought, like groceries.
Budget, budget, budget…
Making a budget was one of the biggest challenges for me. I just couldn’t be honest with what I was spending on.
You need to acknowledge your spending habits for what they are. But you also need to know what to include in your budget.
- Total income
- Total expenses (anything you spend on money outside of bills, include it. We’ll go back later and take a look at what needs to get cut)
- Total surplus (this number will come in handy when setting up your debt budget)
- Total required spending (rent, electricity, other bills, etc.)
When you get paid, set aside money for the required spending column (RENT money!). Everything else is really put on the backburner until those things are taken care of.
When you first start out, you’re going to want to put as much money toward your debt as possible.
Debt budget, debt budget, debt budget…
This is where your surplus budget money will go. Anything you have left over at the end of the month should go toward your debt. But you’ll need to prioritize. You’ll want to take your highest interest debts and pay those off. Pay the minimum amount possible on your lower interest debts, and put everything else on your highest interest debt. Once that debt is paid off, start paying the next highest interest debt.
Make transfers, save money
The majority of my debt was on credit cards. But, I found that if I transferred my high interest balances to other credit cards with lower interest rates, I could save money on interest payments.
If you’ve maxed a few of you cards out, cut them in half. You’ll only do yourself a disservice if you continue to use credit cards that are maxed out. Not only will you be negating payments you’ve made, you’ll also incur penalties for using it beyond its limit.
It takes discipline to become debt free. The rewards are high, though, and if you can do it, you can live comfortably (and without worry of missing rent) on whatever income you make. Just remember to make your budget and be honest about it, cut your savings back significantly and use that money to pay off debts, transfer your high balance to low balance credit cards, and really look for ways to save money. You can do it. I did.
Haylen Bradley is a contributing writer for TipsOnHowToSaveMoney.com. She lives in Washington D.C., where she enjoys going to Nationals games.