How to Create A Budget Focused on Cutting Down Debt

How to Create A Budget Focused on Cutting Down Debt

Get yourself out of debt

Debt has become increasingly more common. The prices and rates of necessities have been steadily rising, and so has the spending of many business owners. The cost of running a business has been rising, but that does not mean that there has been an increase in the amount of money that a business makes. Business are being forced to take out loans to pay for maintenance costs, re-supply costs, and even some overhead expenses. Businesses that have taken out loans and have not seen an increase in revenue are finding themselves in situations where they are not able to pay off their debts and work toward becoming debt-free. There are many ways that debt can be combatted, but the most pressing way to cut down debt is to develop a budget with the sole purpose of cutting down debt.

Make A Payment Plan

The first step to any great strategy is a plan. One of the easiest ways to cut down debt is to make a payment plan of paying off creditors. Once you decide that this is the way to go, it is important to look at how much capital you have on hand and how much revenue you have coming in every month on average. This will allow you to calculate how much you can afford to pay off each month.

Start by writing down and itemizing your debts. Figure out how much you owe to each lender. Begin paying your debts by order of importance. Bankrate offers a free tool that you can use to itemize your lenders and debts. Their debt pay down calculator can make it extremely easy to see what should be paid, when, and how much to efficiently cut down your debt. Many lenders that you have deep debt with are also sometimes open to a custom payment plan that can be negotiated with your lenders to help reduce the amount of your payments, and even re-negotiate your loan terms.

Set Up Automatic Withdrawals

Debt can sometimes be overwhelming to manage. It is easy to forget about some debts and have them go unpaid until it is too late. The best way to avoid this is by setting up automatic withdrawals with these lenders. When you have a limited budget set up, automatic deductions can make it hard to fall into the trap of making different excuses not to pay debts. The automatic withdrawals should be factored into your budget as these deductions will come out automatically.

It is important to monitor the deductions from time to time to ensure that the correct amounts are taken out for each deduction. Paying attention to the frequency of the withdrawal is also a great practice to have. This will lead to ensuring that your budget remains as planned, and there will not be any surprise deductions in total cost or frequency.

Cut Costs Where Possible

When you are creating your budget, it is important to maximize the value of your money. If there are areas that can sustain themselves with a smaller budget, or a shift in quality, it could be a big help. Cutting costs can be the most important aspect of creating your debt-cutting budget. The majority of your debt is because of your costs; if they are not lowered, you will not be saving any money in the long run.

A cut in costs can be anything from switching from name to generic brands for your needs, all the way to cutting out some services from your budget like cable TV completely. When you make the cuts to your budget, you can use the extra funds to put toward your debts and payments that need to be made to your lenders.

Change Your Spending habits

While changing your spending habits can sound similar to cutting costs, it is actually much different. The best thing that you can do for yourself is to analyze what brought you to the position of debt that you are in initially. Once you realize how you found yourself in your debt, to begin with, it is imperative not to return to that situation.

Changing your spending habits to maximize the value of your funds and make your money work for you rather than the other way around. Research your planned purchases and make sure that you can afford your purchases without financial backing from lenders. If you can change your habits to only purchase items that you have with that you already have available, you will find it hard to generate more debt.

Seek Professional Help

If you have tried all of these methods but are still finding it difficult to start cutting down your overall debt, consult a professional in this field. There are many credit counseling agencies that specialize in helping others cut down their debt. You can also visit the website for the National Foundation for Credit Counseling to learn about more resources that are available to you.

The process of climbing over an overwhelming mountain of debt is just that, a process. It does take time, so make sure that you start out slow and find the best options for you that work with your budget and income. If you ever have any questions about budgeting or chipping away at existing debt, I encourage you to reach out to me at heidi@hlabookkeeping.com.