Getting organized is the first step.
We bring you ten ways to help you out with your financial crisis.
1. Be organized
Start by getting organized. I know it sounds ridiculous but you need to know how much debt you are in. Maybe you are too afraid to face the reality and calculate the amount you owe or you might feel overwhelmed by the amount of debt you need to pay back. But you need to know the number you’re dealing with along with their interest rates and due dates for reach. List it all out either from the highest to the lowest amount or vice versa, and add the amount of minimum payments to understand how much you are required to pay off every week or month.
2. Draft a budget
If you are unsure of where and how to begin, give the 50-20-30 rule a shot. Feel free to change the numbers to suit your needs. First, list out the essential things you really need to spend on like transportation costs, rent, groceries, and utilities. Be strict and only list our the things you actually need (and no, you don’t need the new Kylie lip kit). Spending on essentials should only take 50 percent of your pay; if you’re spending more than that, you’re in a dire need to tone it down a notch.
Switch to subway rather than taking a cab, switch to cheaper grocery labels than the fancy ones, in short, get creative.
Second, commit 20 per cent of your pay to your financial goals and debt. This is why knowing the number of minimum payments comes is necessary. If the required minimum payments amount to less than twenty per cent of your pay, then commit more to the minimum payments each month. This way, you’ll get rid of the debt sooner. However, if the number of minimum payments amount to more than twenty per cent of your salary, then makeup from the third category.
Remaining 30 per cent of your paycheck is dedicated to personal spending. It means all the extra things you want but don’t need. In case of a situation where you are unable to pay the number of minimum payments from the assigned twenty per cent, add money from this remaining thirty per cent.
3. Make a strategy
If you owe a large amount of money it is probably best if you make a strategy and stick to it. You could use either of these two common strategies to get rid of debt.
- Ladder strategy
Here, you attack that debt that is associated with the highest debt rate. It is wise to pay off debts with the highest amount of debt because you’re technically paying more interest with each passing day.
- Snowball strategy
Here, you target that debt that is associated with the smallest interest rate. This is an effective strategy because clearing more debts – even if they are small – gives you more confidence and motivation.
No matter which strategy you choose, just make sure you keep meeting the specified minimum payments every week or month and then focus on eliminating which debt to get rid of.
4. Stop using credit cards
Yes, all of them if you’re unable to pay back the due balance at the end of each month. Instead of letting debt accumulate in your cards as well and ruin your credit score, it is advisable that you stop using them for a while. Swap your cards for cash as it will give you a sense of actually losing the money. You’ll be more watchful when you can see and feel the money instead of transferring the funds from a plastic card.
5. Create a savings account
Start setting aside money in a way that helps you get rid of debt. Sign up for a direct deposit/savings account that is exclusively devoted to that. It will directly deduct the specified amount from your salary each month. This helps because it further limits the amount of money you have which makes you think twice before going on that wild splurging sesh.
6. Find more ways to generate money
You’re bomb at Spanish – voilā, you’re a Spanish tutor. Like walking dogs? Become a dog walker. Love kids? Babysit. Can whip up a storm? Start giving cooking lessons. Analyze your skills and put it to some good use. Let all the money earned from these activities go directly into paying off debts.
7. Say no to non-essential spending
Imagine you’re on a diet, a diet for your wallet aka spending diet. Now, remove the imagination part behind, because you really are on this spending diet. Remember the 30 per cent of your paycheck we talked about? This is about that.
Train your mind to spend as less as possible. Start by doing this for a week, then for a month, and so on until you’ve successfully paid off all the debt.
8. Be picky
It’s a Saturday night and your gang invites you to a party. What do you do? Yes, of course, you pre-drink and go but what do you really do? Agree to see them for only that part of the plan that your wallet allows you to.
9. Be creative
Like I mentioned earlier, you must get creative. You don’t have to party to meet your friends or meet in fancy restaurants. You have plenty of options like organizing a picnic, having a movie night with plenty of popcorn, hitting the park… find out activities and things that are high on fun but low on your wallet.
10. Be honest
In a situation where you have no scope in your budget to hang out with your gang, being honest with them works the best. You don’t have to get into the nasty deets about your little financial crisis, just be straightforward and tell them why you’re canceling the plans.
Embrace your situation rather than being ashamed of it. Instead of giving lame excuses like “I’m sorry it’s my roommate’s boyfriend’s dog’s birthday”, be honest and tell them you’re passing on the dinner because you don’t have money at the moment. They will not only understand your situation but also respect you for being honest. And if they don’t, maybe they’re not really your BFFs.