How to save and get out of debt
Even if you are living paycheck to paycheck it is possible to save and get out of debt, it is just not easy. It takes determination and consistency. The following is an explanation of how to get out of debt and save at the same time:
If you have bills and credit card payments eating up most of your income, it is time to free up some of that income by paying off some debt. You know you need to rid yourself of debt and save some cash, so that should hard times fall, you have some room in your budget. So, to start, get the mind set that you are going to build yourself a cushion of three to six months' living expenses to use in case of emergency. Be determined, and get an exact savings number in mind. Now, realize that the less debt you have, the smaller amount you need to save to cover a month of expense.
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Next, realize you are not alone. There are usually a lot of people are in your situation, but that does not give you an excuse, and you should not procrastinate. Instead, work today to pay off debt and build you savings.
Now, determine which you are going to do first, and how. Are you going to start by reducing your debt, or start by saving some money?
Now, begin to track your spending. If you carefully track your spending you will know what areas of spending you can cut out to free up some money to save or to pay off your debt.
So, write down your typical expenses for one month. Keep track of every expenditure and then evaluate where your money is going. Now, you will also want to consider unexpected expenses, such as gifts, car registration, and car repairs, etc. If you are having trouble tracking your spending, use personal finance software to help. Quicken is a good example of a great tracking program.
Now, look at your monthly spending and compare it to your income. If you spend more than you make you are getting in further debt. Cut out whatever it takes to get into a habit of only spending what you make, not more. If you have a surplus, this is the amount you can apply each month to paying down debt and building savings.
You can always choose to use half the surplus for debt, and the other half for saving.
So, which debt do you pay off first? A wise idea is to create a personal balance sheet where you are going to list your debts in order of interest rate, from highest to lowest. Now start at the top. Pay off the highest interest rate debt first, as it is the one costing you the most.
Next, as you pay off debts, simply take the amount of the payment you were making, and apply it as additional payment to the next highest interest rate debt you have. This is a great way to save and get out of debt without changing your income. Even a few dollars a week in a savings account starts to add up. If you were to put $25 a month away, you would have $300 at the end of the year. $300 may not seem like much, but it is a whole lot more than $0, which is what many save. So, start somewhere, and increase as you feel comfortable. Soon you will not even miss the $25, so increase it to $50. Do this until you no longer feel a strain on your budget, then increase it to $75. Continue doing this, and you will get out of debt while your savings build
