Many people wonder what the best strategies are for reducing their debt. While it’s usually easier to spend than it is to pay off debt, here are four of the best kept secrets that will make things easier:
|There are four cornerstones to reducing debt: 1) use savings to purchase things, 2) plan your spending with a budget, 3) avoid following the crowd and racking up debt, and 4) create new financial habits to break the old ones.|
1. Savings: The Last Frontier
When most people want to reduce their debt, the last thing they think about is saving money. However, once you’ve stopped using your credit cards, how will you pay for an expense you forgot to budget for? If you have gone as far as getting a debt consolidation loan, then budgeting for those forgotten items is that much more important or you’ll end up doubling your debt rather than paying it off.
If you really want to reduce your debt, you need to make extra payments (even small ones), not use the card or line of credit until it’s paid off, and also set money aside to pay for the things that just come up.
2. What’s Old is New Again - Use a Spending Plan
Before credit cards became available in the 60’s, how did people pay for things? They worked hard, saved and planned their spending based on what they could afford to buy with cash. Get back to basics. You know what it feels like to be in debt, so don’t knock something you haven’t tried. The old budget has stood the test of time for a reason – people know it works.
3. Avoid Following the Crowd
Your parents were right – just because everyone is jumping off the bridge, doesn’t mean you have to. Okay, so the bridge is a slight exaggeration, but the river of debt and denial below isn’t. Canadians are spending way more than they make and have come to believe that debt is normal. Too many people just ‘charge it’; but just because everyone is doing it, still doesn’t make it a good idea. Decide what is good for you and your family and stick to your plan to pay off debt before interest rates go up. Financial decision making shouldn’t be a popularity contest.
4. Break a Bad Habit with a New Habit
The main reason that so many people struggle with their budget is that it isn’t realistic. Either they forget to include things that they know they’re going to spend money on, or they set their budget based on limitations and deprivation by excluding things they really want to spend money on. Be realistic. If you spend $100 a week on eating out, before you chop $100 a week out of your budget, learn to cook, buy groceries, organize snacks, and plan what else you’ll do when everyone you usually eat out with still heads to the restaurant. Leave $50 a week in your budget to start with, until you’re ready to chop all $100 out. We are creatures of habit, so take it easy on yourself and learn how to replace one habit with another.
The great news is that there’s no perfect way to make a budget or get rid of debt. Perfect is much too high a standard and causes most people a lot of stress. Getting started and making good choices most of the time is all it takes. Set as little as $10 a week aside and pretty soon you’ll have $40 more than you had a month ago. You’ve got nothing to lose, so try these 4 secrets (they're actually the cornerstones for getting out of debt) out and you’ll see!
Here again are the four secrets to follow that are the cornerstones of getting out of debt:
1. Re-think saving. You need it to balance your budget.
2. Get back to the basics of budgeting. You can’t avoid debt without it.
3. Bad debt isn’t normal. Learn to use cash rather than relying on credit.
4. Spending is based on habits, and bad habits are worth breaking.
Financial goals might be the furthest thing from your mind right now, so use these 4 cornerstones to get back in control and get more of what you want financially. You’ll be prepared to weather the worst with a plan for the best!