1. Get organised.
You might be overwhelmed by how much debt you have, or maybe you're afraid to see exactly how much you owe. But once you know what you're working with, you can figure out how to deal with it. Make a list or a spreadsheet of all your debts, what the interest rate of each one is, and the minimum payment that is required of each. Organise these either from smallest to largest amount owed, or highest to lowest interest rate (more on that in a sec). Then tally up the minimum payments to see at least how much you need to pay back every month.
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2. Make a budget.
Not sure where to begin? Try the 50-20-30 rule. You might have to adjust the numbers a little to fit your situation, but it's a good place to start.
First, figure out your essentials, aka the things you have to spend money on. Be strict with yourself. In terms of rent, are you living somewhere that you can afford? In a perfect world, spending on essentials would take up no more than half of your take-home pay.
Second, devote 20 percent of your take-home pay to paying off your debt and financial goals. This is where knowing the minimum payments you need to make each month comes in handy. If those minimum payments take up less than 20 percent of your paycheck, then contribute beyond the minimum each month to get rid of your debt faster (see strategies to do that below). But if your minimum payments are more than 20 percent, then make up the difference from the third category.
The third category is percentage of your take-home pay devoted to personal spending. This is basically all the fun stuff - you know, the stuff you want but don't need.
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3. Create a strategy.
Remember when I said to list your debts either in order of amount owed or the interest rate? That comes in handy when you use one of two popular strategies to eliminate debt.
One is the snowball method. This is where you focus on paying off your smallest debt first and progress to higher amounts of debt. The idea behind this is that you'll find get a confidence boost in paying off the more easily cleared debt first, and as you more quickly eliminate debt, it'll become easier to keep track of what money you owe.
The second is the ladder method. With this strategy, you attack the debt with the highest interest rate, because that's the one you'll have to pay the most extra money on in the long run. Whichever strategy you pick, make sure you're maintaining the minimum payments on all of your debts first and foremost, and then focusing on eliminating whichever debt you choose with additional payments.
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4. Take a break from your credit cards.
If you can't pay off the balance on your credit cards each month, then stop using your credit cards. Put them into retirement (but don't close them altogether), and switch to using cash whenever possible. Putting additional money on your credit cards that you can't pay off creates more debt, which creates more interest owed. Also, knowing you have a finite amount of money to spend each week or month, and having to physically hand over that money whenever you buy something, will make you think twice before you buy anything.
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5. Set aside money upfront.
Once you've figured out how much money you need to pay off your debts (as well as any extra that you want to pay off), create a savings account that's devoted solely to that task. If you can, set up a direct deposit to deduct that amount of money from your paycheck to that account each pay cycle. That way, you won't even see the money in your main checking account, and you won't be tempted to use it in your day-to-day spending. If you can't do direct deposit, then at the beginning of each pay cycle (seriously, do it on pay day so you don't forget), move a chunk of your paycheck into that savings account.
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6. Find a side hustle.
Take an inventory of your skills. Maybe you're bomb at French - voilà, you're a language tutor. Maybe you're great with kids and can babysit. Or maybe baby humans aren't your thing, but dogs are, in which Pawshake was basically made for you. Are you a champion IKEA furniture assembler (bless your heart)? Advertise your skills on Airtasker. Do you have a way with words? Or how about with code? Try out Up Work. Don't factor the money you get on the side into your budget, and put any money you earn beyond your normal salary toward paying off your debts.
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7. Go on a spending diet.
Don't do any nonessential spending (this is the 30 percent part of the budget mentioned above) for one month. During your no-spend month, go beyond the minimum payments for your debts, and get in the mindset to spend less long-term as you become better at assessing what you want and what you need. Just make sure not to backslide when the month is over!
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8. Be choosy.
If your friends are going out for a night of dinner and then bar-hopping, don't feel like you have to do it all just to keep up with them. Agree to meet your friends for part of the night and spend only as much as you can afford.
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9. Get creative.
Sometimes it feels like the only way to see your friends is to meet for a dinner out or get drinks. But you have so many more options than that! Instead, try suggesting a potluck, going for a hike, hitting up the beach, having a board game night ... find activities that are fun and require minimal dollars.
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10. Be honest about your situation.
If there's no room in your budget to go out with your friends, be honest about it. You don't need to tell everyone all the nitty-gritty details about your financial sitch, but you should be straightforward about why you're passing on plans. There's no shame in not having enough money for a night out, and it'll be easier to be honest than to have to make up excuses for why you can't hang out. After all, everyone should be able to understand "I don't have the money to go out for dinner right now" (and if they don't, that's on them!) but "I promised I would feed my roommate's dog that night, sorry" sounds like a blow-off.
Source: Cosmo US