5 Tips For Getting Out Of Debt On A Limited Budget

Having trouble paying down your debt? You’re not alone. With average U.S. household credit card debt reaching $7,529, chances are you’re just one of many folks juggling monthly payments with what feels like a very small budget.1

If you’re unsure how to balance paying off your credit cards with the income you’re bringing in, follow these tips to manage your spending and monthly payments.

1. Set Up An Automated Savings Account For Debt Payments

If you’re serious about paying down your debt, chances are you have set up an emergency fund and gone through your monthly income to gauge how much you can reasonably put toward your balances after accounting for spending on necessities. The problem? Many of us lack the willpower to actually follow through, using funds meant for debt repayment for things like vacations, expensive dinners out and other “nice to haves.” Avoid that by automatically having a certain percentage of your paycheck put into an account that you tap once a month to pay off your debt.2

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2. Apply “Windfalls” To Debt

Was your Grandmother kind enough to leave you $1,000 in her will? Instead of splurging on a new handbag or flying to Las Vegas for the weekend, put those funds toward paying off your debt, preferably that with the highest interest rate. The reason? It’s what’s sometimes called “found money,” meaning you won’t miss it. Unlike shaving a few dollars here and there from what you typically spend on groceries, gas or entertainment, putting money you didn’t know you had toward paying off debt won’t crimp your lifestyle. The benefits are many: Depending on your windfall, you’ll either be able to pay off your debt entirely, or pay down the balance enough so that the interest on remaining payments is lower.3

3. Increase Tax Exemptions And Use That Money To Pay Off Debt

Who doesn’t like to get a chunk of change after filing their taxes? Problem is, that’s money you have been overpaying to the government all year, and could have been receiving to pay down debt. Correcting your exemptions so that less of your paycheck is withheld leaves you with more cash to put toward your monthly debt payments.4

4. Eliminate Major Expenses

Ironically, cutting out a large expense just once might be less painful than reducing expenses bit by bit. Take downsizing your home. Moving from a one-bedroom apartment to a studio in a major metro like New York City could save you from $500 to $1,000 a month, and allow you to leave other parts of your budget, like dining out and your daily latte, as is. Same goes for commuting. Can you sell your car and bike to work or take public transportation, saving on insurance on top of the sell price you’d receive? The added benefit here is a windfall to help pay down your bill fast.5

5. Treat Yourself

If you’ve calculated it will take several years to get out of debt, make sure you avoid debt fatigue by allowing for some fun spending in cash. This means small, every-now-and-then purchases like a new pair of shoes or a new video game to help you stay on track and avoid becoming apathetic to and resentful of your debt load.6

Sources:

1: http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/

2: http://www.thesimpledollar.com/the-two-account-system-for-automatic-savings/

3: http://www.thesimpledollar.com/25-smart-ways-to-handle-a-1000-windfall/

4: http://www.nerdwallet.com/blog/credit-cards/increase-takehome-pay-pay-credit-card-debt/

5: http://blog.creditkarma.com/debt/practical-ways-to-speed-up-your-debt-payoff/

6: http://www.creditkarma.com/article/how-to-overcome-debt-fatigue-828152

Legal Disclaimer: The articles and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. 

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