Budgeting to Get Out of Debt

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If you’re in debt or having trouble with money, you’re not alone. In June 2019, student debt totaled $1.605 trillion, and the average U.S. household is $135,065 in debt.[1] Believe it or not, these shocking numbers do not only come from necessary expenses, they also come from bad spending habits.

While living expenses such as rent, food, and gas are necessary, an apartment in the heart of downtown, eating at restaurants every night, and the most luxurious car on the market are not as necessary in your life, especially if you’re having money troubles.

How to Get Out of Debt

It is possible to get out of debt, and you can even get out of debt on a low income. If you find yourself in debt, there are plenty of actions that you can take that can help pull you out. First, you should begin by setting realistic financial goals for yourself. Set goals that are clear, defined, possible to achieve, and relevant to your situation. One of the most realistic financial goals is also one of the ways you can get out of debt: budgeting. It takes $0 to create a budget and stick to it.

The 50/30/20 Budget Rule

The basic 50/30/20 budget rule is to divide up after-tax income and allocate it to spend: 50% on needs, 30% on wants, and putting away 20% to savings. Create a budget using the 50/30/20 budget rule by splitting your finances into these three categories. Before doing so, you must determine which expenses are necessary to cover basic living needs, and which expenses can be cut. The expenses you give up can be utilized as the 20% to put into your savings account and towards your future financial goals.

Consider Extra Payments

Extra payments on your accounts can shorten your payoff time so you can get out of debt quicker. Not only can you pay off the money you owe, but extra payments can also boost your credit score by lowering your credit utilization ratio.

Focus on Your Needs

Focus on your needs, not your wants. Learn to say “no” and stop treating yourself with food, clothes, drinks, subscriptions, etc. You can’t get out of debt if your debt continues to grow. Create a budget and categorize your spending so you can understand where you are spending too much money and what items you can cut out and say “no” to. For example, you do not need to go out every Friday after work. Even spending one Friday night at home can save you money and help you make headway on getting out of debt.

There are many different steps you can take to help get out of debt, and all you have to do is start by setting realistic financial goals for yourself, create a budget, and stick to it!

SOURCE: [1] SpendMeNot – 23+ Consumer Debt Statistics That Will Shock You in 2020

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