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How to Get Out of Debt While Living Paycheck to Paycheck

How to Get Out of Debt While Living Paycheck to Paycheck

You are tired of many of the drudgeries involved with being an adult, but you’d have to rank paying bills and trying to get out of debt near the top of the list. Maybe you put off paying your credit card bill one too many times and now the balance is starting to add up. Or maybe you made a bad financial investment and now the rest of your budget is suffering because of it.

However you got into debt, now’s the time to start learning how to get out of debt. Why? Because the more time that passes, the more your debt is going to grow. Do you want to be paying off your vacation from two years ago three years in the future or are you ready to say “no more,” and initiate real change?

Many times debt adds up because you may underestimate your own willpower to pay it off in the timeline you pictured originally. Now a lack of wage increases or a job loss occurred and your life looks a whole lot different – you’re just trying to make rent this month and the other debts are taking a backseat to your paycheck to paycheck life. Don’t worry. You can still pay off a significant level of debt while struggling through this time, it’s just going to take some extra motivation and a commitment to living differently until you’ve met your goals.

What’s Wrong With Waiting for Your Paycheck to Pay Bills?

Sure, you want to know how to get out of debt, but let’s look at the root of the problem first. It could be that your style of living paycheck to paycheck is part of the reason you’re feeling weighed down by a mountain of debt in the first place.

It might seem strange for you to even question this lifestyle. Doesn’t everybody wait until they get their paycheck to pay bills? Maybe that’s how your parents did it, it’s how you’ve always done it and you’re reluctant to make changes in this area. You’re not alone. 38 million Americans live paycheck to paycheck, as research shows.

Well, you have to get inspired in order to change, and sometimes looking at the potential negative consequences can be a motivating factor. How can living paycheck to paycheck hurt you?

You know that pit in your stomach when you lose hours at work? You know that sinking feeling when you hear a strange noise in your car? You’re worried about money, even if it’s not consciously on your mind all the time. How to Get Out of DebtWhy? Because if an emergency cost added to your monthly budget, even a small one, could push your budget over the edge. If you use up all of your paycheck money every single month and you’re holding on until the next payday, you probably experience these feelings on a weekly or monthly basis.

Besides the stress factor, living paycheck to paycheck can cause you to depend on lines of credit to help you get by in the event a sudden expense comes along. Once you open these lines of credit, you have to pay them off. That adds just another bill to your month, further stretching your cash and causing you even more serious levels of stress.

Basically, living paycheck to paycheck puts you at risk. A medical emergency, a job loss, a drastic car problem – each of these issues could be the catapult that sends you into a financial tail spin. Do you always want to be “just making it,” or someday do you want to get ahead?

The following steps can help educate you on how to pay off debt but also change your financial mindset so that you aren’t focused on the paycheck to paycheck life.

Assess Which Monthly Bills are Necessary and Try to Cut Costs

Sometimes the best way to increase your monthly income is to keep more of it. If less of your money is promised to bill collectors, whatever type they may be, you are better off because you get to utilize more of your cash to make progress towards debt payoff.

If you are honestly committed to learning how to pay off debt and executing this knowledge in your daily life, start here. Cut out every single unnecessary bill you pay. You should only be paying for housing, utilities, food, insurance and transportation. That’s it. Your cell phone plan? Pay by the minute. No more expensive data plans. Your cable? Say goodbye to the premium channels. Try to just pay for internet then stream your entertainment. Gym memberships, magazine subscriptions and any other repetitive charge? Get rid of them. This will free up instant money in your budget.

Once you’ve narrowed your bills down to the basics, try to cut those basic bills down even more. Don’t let fear dictate your actions at this stage. Consider moving to a cheaper apartment or selling an expensive house. Rely on a dependable used vehicle – you don’t need a brand new model. Cut coupons before you go grocery shopping. Buy healthy, filling food and stop wasting cash on unnecessary sugar-filled drinks and foods like soda and desserts. Call your insurance company and see if you can qualify for a rate reduction. Make it a challenge for yourself – how much can you actually cut out of your budget? It should be interesting to see what you’re able to accomplish once you make up your mind to work at it.

Tackle Your Highest Loan Bill or Highest Interest Debt First

Now it’s time to address your debts. Obviously, throughout the time you are trying to cut costs and make room in your budget, you have to keep paying the minimum requirements on all of these debts. But once you’ve gathered together extra funds, you can start putting this cash towards your debt – the more the better.

But which debt should you pay off first? Well, this depends on you. Let’s say you have a car loan that takes $300 a month out of your budget, but you only have about $2,000 left to pay. You might want to pay off this first. That way, once it’s gone, you’ll have an extra $300 to work with every month and might help motivate you since you can put this cash towards your other debts and watch their balances fall even quicker.How to Get Out of Debt

On the other hand, let’s say you have a $1,000 credit card balance, but the interest rate clocks in at about 20%. Your car loan only has a 7% interest rate. If you pay the credit card’s minimum while you’re paying off your lower interest car loan, you’ll end up racking up much more additional interest charges than you intended. You’d be smart to focus on working off your high interest debt first in this case.

Some people say to tackle your lowest debt amount first as well, sometimes referred to as the “snowball” method. The thought behind the strategy is that once you see one debt completely wiped out, it will give you that instant satisfaction you need to keep working towards your goal. There are exceptions to every rule and everyone is different: choose a path that works for you, but systemize it so you know where that extra monthly money is going to go so it doesn’t end up getting spent.

Start Paying Bills One Month Ahead

While you’re working on figuring out which debts to pay off when, start working on not living paycheck to paycheck as well. Step one: open a special savings account. On a weekly or monthly basis, whatever works for you, pick one of your regular bills at a time and put money equal to the usual total into the savings account. For example, your car insurance bill is about $100. Over the course of four weeks, put $25 a week into this account. You’ve now got a cushion for this bill. If something were to happen to you next month, you would still be able to pay your car insurance.

Some of your bills might be too expensive to accomplish this in one month, but work towards it. You’ll have to balance saving with paying off debt, and that will depend on how much extra you can eek out of your budget.

It might take you a significant amount of time to get a whole month’s living expenses in a savings account, but it’s so worth doing. It might give more motivation to cut down your bills even further. That way you have less at risk if you lose your job all of a sudden. In fact, you should try to get much more than one month’s worth of expenses – many experts recommend three to six. It depends on how much risk you are willing to take on.

Find New, Free Hobbies

Here’s another great way to add instant cash to your monthly income flow – stop spending money for fun. Many people go shopping when they need “retail therapy” and it’s not good for your long-term state of mind even if you find satisfaction in the moment. It’s time for you to branch out.

Find ways to have fun that do not involve a high cost such as hiking, crafting and more. This also may involve making new friends that also enjoy these cheap hobbies. Search online for local groups in your area involved in your new hobby. Ask around at your local community center or library.

Understand and Curb Your Spending Tendencies

It’s time to psychoanalyze yourself: what makes you spend? Do you cave to the peer pressure involved with purchasing the newest hot item? Do you spend without thinking or is there an emotional motivation? What’s your downfall – going out to eat, purchasing clothes or shoes or buying gifts for others?

Once you contemplate the reason for your spending, try to identify the triggers in real life. When you get the urge to negate your budget and splurge, reign yourself in. Try to convert this urge to spend into an urge to save. Try to partner with a friend that is financially responsible and share your strengths and weaknesses. It helps to work together with people with similar goals and maybe a different perspective on how to get out of debt and invest in your future.

Don’t Work Without a Plan

There is no one strategy on how to pay off debt that works for every single person. You are going to have to take in all of the suggestions and make a plan for your personal budget. But that’s the key – making a plan. If you just try to stop spending here and there, occasionally fall back into old habits and get back on the wagon, you’ll only be half-committed. You will constantly be disappointed with yourself and your goals will only be reachable that much farther in the future.

The best action you could take is to calculate how long it’s going to take you to pay off your current debt in your present situation. Circle a “payoff date” on the calendar – the day you expect to be free from all of your debts, with at least one month’s advance expenses in the bank. From there, there’s plenty more steps to take on your financial journey, but breaking even on your debt is undeniably the most important – and not living paycheck to paycheck is a major part of that effort.

How Dedicated Are You?

There is no point in digesting information on how to get out of debt if you’re not going to then live by the principles. In fact, it’s worse if you know how to get out debt and then ignore the advice. A mixture of personal responsibility, a dedication to your future and accountability can help you get out of debt. Actually, it can help you get anywhere you’d like to go. Change your perspective: you are not the victim of your debt. You are the conqueror, as you should be, since it’s all in your name. Become this conqueror by starting with these tips and furthering your education on how to get out of debt as often as possible.

Scott Carver
Scott Carver
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