How to Pay Off Debt When Living Paycheck to Paycheck
According to CBS News, 8 in 10 Americans say they live paycheck to paycheck, which makes it hard for individuals to get out of debt. And with 80% of Americans in debt, this puts most people at a tough financial impasse. If you’re one of these people, you may be thinking there’s no end in sight, but it is possible for you to pay off debt even when living paycheck to paycheck. You just need to keep in mind that it’s going to be hard work and will likely require some changes made to your current spending habits. But if you can commit to the following tips and tricks, you’ll find yourself debt free before you know it.
Ensure everyone is mentally prepared.
Whether you handle your finances alone or share finances with a spouse, it’s important that everyone is mentally prepared for what it will take to get out of debt. This means you both need to understand that your spending habits will likely need to change and some adjustments may need to be made to your current lifestyle. If you cannot wrap your head around this, it will be entirely difficult for you to get out of debt. However, if you can commit, you’ll have a goal that’s closer to obtain than ever before.
Gain a better understanding of your current financial situation.
Before you can start your journey to paying off debt, you need to gain a better understanding of your current financial situation. This means you need to take the time to sit down and look at the money you have coming in versus the money you have going out. Write down a list of how often you get paid and how much it brings in every month. Then write down a list of your monthly expenses, listed by things like necessities (mortgage, utilities) down to those that are not necessities (dining out, entertainment). By doing this, you’ll have a better understanding of where your money is going.
Negotiate bills or cut expenses.
Now that you know where your money is going, it’s important to negotiate bills or cut out certain expenses. For instance, if you pay $30 a month for a gym membership you barely use, then it’s a good idea to cancel your membership. This gives you an extra $30 you can put toward your debt every month. In addition to cutting expenses, you can negotiate your bills. For instance, if you have a high cable bill, call the provider and see if there are discounts you can take advantage of. If not, then maybe you should decide if there’s another cable provider in your area you can use or if you even need cable altogether. If you’re uncomfortable doing this yourself, consider using an app like Trim that will do all the work for you.
Create a budget.
After you have cut expenses and lowered bills, it’s time for you to create a budget. There are plenty of ways to do this, so you need to find the way that works best for you, whether it’s using a spreadsheet or by using an app like Mvelopes. This will help you see exactly what you have coming in and what you have going out every month. Be sure to budget for everything, including things like groceries or gas. If you forget something, it will make it harder for you to get out of debt. After you create the budget, you’ll notice if there’s a disconnect between your income and your expenses. If you don’t bring in enough money to cover everything, you’ll need to find more expenses to eliminate to help balance.
Generate side income.
Generating side income can be tricky, but it’s a good idea especially if you want to get out of debt. For some people, this means taking on another part-time or full-time job; however, this isn’t an option for everyone. If you cannot afford to do that, then find other ways to generate income. For instance, maybe you can put a skill to good use, such as baking, babysitting, or taking on online writing or proofreading jobs. You can also look for jobs like Uber or Instacart that allow you to work when it’s convenient for you. Or, find things around your home to sell for extra cash, such as old appliances, clothing, or even sell a car for parts.
Once you have this side income, it’s important to use it solely to pay off your debts. Even if you only bring in an extra $100 a month, that’s $100 you didn’t have before. In order to most effectively climb out of debt, consider using Dave Ramsey’s Snowball method, which forces you to pay off the smallest debt first and continue to roll money into the larger debts.
By being on top of your financial situation and making the necessary changes to your spending, you’ll find yourself getting out of debt and out of the paycheck to paycheck cycle before you know it.