Are you living Paycheck to Paycheck, or maybe you just want to get ahead! I know so many of you are struggling to just make ends meet, but yet you know you need how to pay down debt in order to ever get ahead. It can be oh so easy for me to sit here and tell you to just start saving more, or spend less. But I want to give you a little bit more practical advice on ideas you can use to start putting money towards savings.
In my book How to Make a Budget Work For You I walk you through the steps of creating your Debt Summary and listing out your debts from smallest to largest. The idea is that if you are currently making the minimum payment on each item and you can eliminate the smallest one, you’ll be able to put that money you were paying towards the minimum payment towards principle of the next debt. This is called a “Snowball” Because as you get each debt paid off you start to have more and more money in your budget to put towards each of the remaining debts.
The problem is if you don’t have a lot of extra money and you are constantly living paycheck to paycheck it’s hard to ever get that first debt paid off and get the snowball rolling!
How to Pay Down Debt
Here are 7 practical tips you can use to start paying down debt even when living paycheck to paycheck:
1.) Stop the Bleeding
You can’t ever get ahead if you are continuing to create a problem, in fact most people are getting into debt faster than they are getting out of it, so it’s almost impossible to get out of debt until you stop the bleeding. This is the time to cut up your credit cards, create a budget or spending plan and focus on really living within your means.
2.) Sell As Much as You Can
If I asked you to list your “Assets” You would probably list off things like a House or Car or 401K. But assets can be anything that can be sold. Do you have expensive clothing, purses, shoes, bikes, furniture, Gaming Systems and more lying around your house? Most people have a house full of stuff they aren’t using, Facebook makes it really easy to sell items around your home by listing them in Facebook Garage Sale Groups. Look up a local group and request to join, then post your stuff and see how much you can sell!
While it might not seem like much at first $20 here or there can add up. My sister in law recently sold 3 items out of her closet that she no longer wears for around $100, That was for just 3 Items!!! This money is perfect for starting your emergency fund, It can really be a fun challenge once you set your mind to it, the hardest part is getting past the “I don’t have anything” mentality into the “Who Could Use This” or “Do I really NEED this” Mentality it’s amazing how much you’ll discover to sell.
3.) Set Aside an Emergency Fund
Jumping back up to point number 1 a little bit you can’t stop the bleeding if you’re constantly running into un-expected expenses. So many of you have told me that you feel like as soon as you get on a good system with saving money something happens and you’re back where you started. This is exactly why you need an emergency fund, for those un-expected expenses, car break downs, sick kids or family members. All of those things life throws your way will knock you back down if you aren’t prepared with a way to avoid having those set backs send you into debt again.
I recommend having at least $1000 in a separate account as an emergency fund. The reason I would put this in a separate account is so that you don’t use the term “Emergency” too loosely, just because you ran out of money and something came up doesn’t classify an emergency. A sick kid that ends up in the hospital overnight might be an emergency, or a car that breaks down on the side of the road. Having the money in a separate account prevents you from spending it too easily and also helps you make sure it doesn’t get lost in the mess of bills and payments coming out of your regular checking account.
4.) Create a Plan
Having a plan of what you’re going to do is critical. If you just look at your money and instantly write it off as “I don’t have any money so I can’t pay down debt” You probably won’t get very far. Taking time to sit down and determine which debt you’re going to pay first, and then coming up with a plan to pay that off is key. If you know you have a $2,000 Credit Card to pay off first you can put all your energy into coming up with ideas to earn that $2,000, don’t focus on the rest just take it one small step at a time.
5.) Sacrifice Short Term
Paying off debt is hard, especially if you are constantly looking around you at friends and family who seem to be buying new stuff all the time. I always like to remember that these are short term sacrifices, the reason you want to pay down debt is so that you can live free from that trap! So you can have money to buy the things you need and want, and that this is a short term sacrifice for a long term dream! Some day, I promise it will be so worth it! But for now, keep your eyes on your goal and don’t spend too much time looking around at others, dream big and chase after those dreams of being debt free! Once you realize those dreams the short term sacrifices will be all worth it.
6.) Find Extra Sources of Income
If your budget is tight there are 2 sides to the equation if you want to pay down debt. You can spend less or earn more. For a lot of people living paycheck to paycheck it’s hard to spend less because most likely you are already watching what you buy so you need to work the other side of the equation.
Remember this doesn’t have to be an extra job, it could be something weekly or monthly that allows you to still stay at home, or work your regular job all at the same time. Here are a few examples:
- Become an online Editor using sites like UpWork
- Babysit Kids in your home one day a week
- Mow 2-3 neighbors yards each weekend
- Offer to Consign Clothing for other Moms during local sales for a % of the earnings
- Become an Uber Driver (You can sign up here)
- Sell Items you make on Etsy
If you can just make an extra $50 a week that’s an extra $200 a month that can go towards the principle of your first debt. Once you get that paid off you’ll have the $200 + The amount that was going towards the first item to go towards the second item and remember as you pay down the principle your interest should also reduce, so what you were originally paying as 100% interest is now partially going towards principle.
7.) Track Your Progress & Celebrate
You can see that once you get a good start on the first item each item after that becomes easier and easier, that’s why I always encourage you to work hard to get creative with that first debt to get it knocked out as fast and quickly as possible. Then track your progress, seeing those debts start to get closer and closer to $0 is so exciting and motivating.
For our family once we started to see the end in sight it was more motivating to find additional ways to save/earn and put the money towards paying down debt. I found myself saying over and over again “I can’t buy that because we are trying to get out of debt” Because I had just a glimpse of what was possible! So keep those goals in front of you, look towards the future and what a debt free lifestyle would mean, stay focused on the task at hand and take things one at a time because you really will start to see momentum swinging in your direction.
Getting started can be the hardest part! Make sure that you have a good budget set up before you start so you aren’t having to put your extra earnings towards daily expenses. I recommend using the system in my book How to Make a Budget Work For You to create a zero based budget, then let the earnings and savings you find go towards reducing those debts one by one!
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