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Getting out of debt is hard. If it were easy, everyone would do it. It’s especially hard to pay off debt when you’re broke. You barely have a nickel to spare and you’re probably wondering how can you “put every extra dollar you make towards debt” if you’re barely making ends meet.
Can I let you in on a secret? Before you even think about giving up before you even get started, what if I told you that you could pay off your debt if you’re broke? You can become debt-free, but some financial changes must be made first.
Tally up your debt
The first, and most important, step is to find out how much debt you actually have. You cannot blindly go into your debt-free journey. I know you may be guilty or embarrassed about the amount you have, but admitting the amount to yourself is the hardest. Your first challenge is to own your debt. Review your statements or call your lenders and ask how much you owe and the minimum payment. The total number may seem high, but there are thousands of people out there with more debt than you and you’re now well on the way to working towards getting that balance closer to zero.
Track your spending
Begin tracking your expenses even if you just spend $0.50. Tracking every cent spent will help you begin to make conscious money decisions. Most of our spending is done subconsciously or without thought. Physically writing down your purchases, rather than digitally at first, makes a huge difference. Towards the end of the first week, you’ll notice that you’re more aware of your spending habits and will begin to think twice before buying anything impulsively.
Create a budget
Creating a spending plan for your money is a necessary step to becoming debt-free. I recommend creating a zero-based budget where you assign a job for every dollar. This doesn’t mean that you spend every dollar earned. You’re just making a strategic plan on how you’ll spend your money until the next time you’re paid. If you notice that your expenses exceed your income, consider cutting back on some areas such as cutting cable, canceling your gym membership or eliminating dining out.
Cut up your credit cards
If you want to see any progress, you cannot continue to use your credit cards. Let me say that one more time. If you want to see any progress, you must stop using your credit cards. So right now, grab your credit cards out your wallet and cut them up. Don’t freeze them or “hide them from yourself.” You need to remove any temptation you may have to use them again. Once they are cut up, the only way you’ll be able to use them again is if you call and have another card shipped.
Build an emergency fund
Having an emergency fund is key to getting out of debt. So many people rely on their credit cards as an emergency fund. But guess what? Once you have an emergency and use your credit card to pay for it, your debt has continued to rise. If you couldn’t pay cash for a said emergency, you more than likely won’t be able to pay off the credit card balance once the bill comes. Having an emergency plan in place eliminates the need to use a credit card. I recommend saving $1,000 to get started and then working your way up to saving funds to cover a month of your expenses. Congratulations, you have become your own lender.
Pro tip: Do not skip this step. Early in my journey, I tried to pay off debt without an emergency fund and it increased my anxiety so much.
Increase your income
You can increase your income a few ways and one of my favorite ways doesn’t even involve getting a second job or asking for a raise. I mentioned this above, but cutting out unnecessary expenses increases your income instantly. Cable, monthly subscriptions, excessive memberships, etc. aren’t necessary. Eliminating these expenses will add a few hundred dollars back into your budget and you’ll have more to put towards debt. “But Kayla I’ve already done these things, and my budget still isn’t working.” At this point, you should consider either getting a second job or asking for a raise. You can also earn extra money on every day needs such as gas and groceries from cashback apps, such as Ebates, Ibotta or Dosh to name a few.
Lower your interest rate
If you’ve crunched the numbers and still feel like you’re unable to make any progress, consider reaching out to your lender to ask for a better rate, transferring your balance to a card with a lower interest rate or consolidating your debts into a lower interest loan. Getting a better interest rate is one way to put more money towards the principal balance and it will help you pay down your balances faster. Don’t be embarrassed to give your creditor a call. They have heard it all and will more than likely be willing to help you.
Getting out of debt isn’t easy I can’t lie. And it will be even harder to pay off debt if you’re broke. But, it can be done. Changing your mindset about money is key and as you can see there are a lot of things you can do right now to help you work towards getting those balances down. Keep working and moving forward and soon you’ll begin to see progress. You’ll be well on your way to living a life that you deserve.