When you’re drowning in debt, money – or the lack thereof – is all you can think about. It requires courage and discipline to overcome debt, especially if you feel like you’re drowning in it. That said, you may not know how to take care of debt once you’re that far gone. Fortunately, this is something that we know about at Ballast Associates. If you’re drowning in debt and you don’t know how to get out, you might try implementing these three tips.
1. Stop Accruing Debt
A report in the U.S. News and World Report cautions against ignoring the debt. Once you’ve determined that you want to get out of debt, get into action. You must first determine how you got into debt in the first place. Do you use your credit cards when you could use cash? Do you buy things that you can’t afford, thinking that you can pay for them on time? Do you spend more at the grocery store than you should because you don’t pay attention to your shopping list?
If any of these issues turn out to be the case, then try keeping a money journal. Each time you make a purchase, write down that purchase in your book. Your spending patterns will start to emerge very quickly. You’ll see what you’ve spent on your rent/ mortgage, utilities, etc. and what you’ve spent on unnecessary extras.
It’s hard to ignore these patterns in your budget when you’ve written them down. Making the pattern conscious is a key way to change your spending habits because writing down your purchases forces you to look at how you spend your money.
2. Budget, Budget, Budget
At Ballast Associates, we usually recommend that someone in your position create a strict budget. This budget cuts out the unnecessary purchases you might make. These could be that weekly coffee runs to Starbucks with your friends. (You often pay for everyone’s drinks.) It could be the lunches that you eat in the local bistro every day. It might be the night at the movies with your family that cost you at least $100.
Once you make your budget, earmark the money you would have used to purchase any of these “extras” as money that will go toward your debt instead. Additionally, make sure your budget adequately covers expenses, like your utilities, gas for your car, etc.
If you can’t pay for your expenses using just your income, then you’re either not making enough money or you’re not budgeting enough for each of your expenses. If the reason is the former, then you need to look at your income, something we’ll do in the next section. If it’s the latter, then adjust how much you budget for each expense.
3. Income Matters
The Money Under 30 website brings up an uncomfortable truth. It’s nearly impossible to pay off a good chunk of debt if your income is too small. Your income is the greatest defense you have against debt. (Well, that and good money habits.)
If your income is not enough, then consider getting a part-time job, selling off some of your assets, or getting a higher-paying job. For example, if you get a gig in a local coffee shop that pays you about $1,000 extra a month, that’s $12,000 more you can put toward your debt by the end of the year.
Yes, it’s difficult to work more. However, once you realize that you’ll get out of debt faster by doing this, then it may make it easier to go this route, at least temporarily.
Final Thoughts
Getting out of debt requires discipline and truth. That is to say, if you can’t look at your financial situation in the proverbial face, then you’ll never be able to move beyond your debt. Once you are able to do this, then you’ll also have the courage to create a budget and to adjust your income so that getting out of debt becomes inevitable
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