Using a budget to get out of debt
Debt is something that a lot of us have learnt a hard lesson about, living for the now rather then budgeting our money to avoid debt and live debt free. Looking back at the debts I have had and the problems that it has caused made me realise that budgeting is the key to reducing your debt or for the lucky ones – staying out of debt in the first place.
Do you think of budgeting as a mind numbing bunch of numbers and worry? Budgeting does not have to be a misery, it does not mean you have to cut all the things you like, it merely means that you are becoming smarter with channelling your money.
Now I want you to do something very different right now – grab those negative thoughts and tell yourself that you are wrong and that you are a beginner at budgeting.
Budgeting makes your debt disappear
Your debt won’t disappear over night, ‘but it will happen’ is the infamous quote. The amount of energy that is spent worrying about debts and paying bills can be better channelled into a proactive debt reduction solution that will ultimately leave you debt free and beginning your money saving journey.
Learning where you spend your money and ways you can cut back on that spending is an amazing feeling, it really opens your eyes to just how much money is wasted that could other wise be paying off your debts.
The importance of using a budget for debt reduction
A great analogy that I once heard was that budgeting is very similar to travelling. You can travel without any plans, learning as you go, making many detours and mistakes or you could create an itinerary / roadmap (a budget) and there will be a lot less number of issues and wasted time. You may as well get the most time you possibly can when travelling to do the things you want and the only way to do that is with a plan.
When managing your debt, it would be wise to have a plan of attack, a budget if you will. It will let you know how much you can spend, where you should spend, where you shouldn’t spend and leave you in total control of your money.
So how do I start budgeting to get out of debt?
I suggest you read the following articles we have written; they will give you a great over all understanding of budgeting and how it can help you with your saving goals and debt reduction goals.
- Get a good budgeting spreadsheet
- Why we need a budget
- How to setup a budget
- Learning to ask for help with credit card debt
What happens when you are out of debt?
Besides having a nice warm fuzzy feeling of having no debt, there are many things that will be great about not having debt anymore. You will be able to start working towards your future goals.
- Saving for a house
- Saving for your kids
- Saving to buy things you want
- Saving for retirement
What are your tips for budgeting debt payments?
Do you have any good methodologies for debt repayments using a budget? Share them!
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2 Responses for Using a budget to get out of debt
This is a great way to get out of Debt. Thanks for the article – any more information on Creating Budgets or Ways to Save Money with Budgets would be great.
I don’t have any hard and fast rules for budgeting. Things happen during the month and I need to be flexible. But there are some basic guidelines I follow:
1. Rent gets paid first. Always and without question.
2. I then pay myself. Currently I’m putting about 10% – 15% of my take home pay into an ING account. Like rent, this always happens without question. I’ve discovered that I like to spend a bit of money, so having the ING is a great way to sock the money away without feeling it, knowing that I won’t spend it.
3. After that, I usually put $50 away a week for general expenses. This goes onto the Visa Debit card and pays for things like utilities, Bigpond movie rental subscription and personal items such as moisturisers and the like that don’t need to be purchased every week.
4. I then pay for the credit cards. I have two (total debt around $8K) so I pay $50 a week off each, plus when the statements come at different times of the month, I pay the usual $50, plus the minimum the banks want, plus the interest rate amount on the opening balance. This makes me feel like I’m making headway with the debt. I don’t know if this is a good way to do it, but it works for me. I want to get rid of the cards ASAP so, any cent I can spare goes onto the cards.
5. Next is fares for the week. We have a “Go Card” here in Brisbane which is like a debit card that you use on the ticketing machines on public transport. I put about $30 a week on my card even though I don’t need that much. But lately I’ve been walking to the next bus zone so I end up paying a little less each trip. Walking to the next stop also gives me a bit of exercise. I use public transport to get around on the weekends too and it’s comforting to know that the extra I pay every week more than covers any busy weekends I might have.
6. Food is last on my list. I’ve started dieting so my shopping bill is much smaller now. I only shop at Aldi and if they don’t have what I want, then I work around it. I still end up making nutritious meals without breaking the budget. A friend of mine does up a menu for the week and shops from that. But I buy what’s on sale and make meals from that.
7. Whenever I have a spare $5 or gold coins, I put them in a jar and take them to bank about once a month. The money goes into a Christmas Club account. It makes a big difference in December and I can buy nice gifts for my family, plus provide a little exta food for the Christmas feast. And when the post Christmas sales hit, I have heaps of money to spend on myself.
I hope my list gives others at least an idea of what can be done. Of course, I don’t have an iron will all the time but those guidelines work pretty well 98% of the time and I’m rewarded with seeing the savings figures go up and the credit card figures go down. I won’t know what to do with myself once the credit cards are paid off. It’ll be like Christmas come early.
I’d love to hear how others cope with their budgets.
