How To Get Out Of Debt When You’re Broke!
Do you think it’s impossible to get out of debt when you’re broke? When you’re barely making ends meet, you may be feeling like you’re literally spinning your wheels and to some extent, that may be exactly what you’re doing.
When money is tight and you’re barely (or not) bringing in enough money to make your bills, sometimes that feeling of despair or hopelessness sets in. You know what I’m talking about. That’s the feelings, though, that cause us to make irrational or stupid decisions. Decisions that set us back even further. Before you know it, we’ve dug the hole even deeper and at that point, you feel like there’s no way out.
As with most things in life, having a plan is crucial to success with just about everything. The same is true with getting out of debt. As the old saying goes, “It’s a lot easier to wander into debt than wander out”. Getting out of debt takes intentionality and intestinal fortitude. There are so many different ways to start climbing out of the debt hole. The following steps can help you get out of debt when you’re broke.
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how to get out of debt when you’re broke!
Get Organized!
Let’s face it, if you don’t know where anything is, you’re never going to be able to honestly assess your situation. Therefore, you should have a dedicated spot to keep the bills as soon as you bring them in from the mailbox. Make it easy on yourself and also have a dedicated place where you can sit down and pay them.
When I bring them in, first thing I do is open them, write on the front of the envelope the amount and the day it’s due. I then place them in a dedicated drawer. As others follow, I do the same thing and file them according to due date. It’s so much easier to have everything in one spot.
Assess your situation
The first step to getting out of debt is to lay all your debts out in front of you. You must know everything you owe and in order to do that, you need to gather your statements on everything you owe. If there’s debt that you don’t get statements for, go to your bank statements and see what is coming out. There may be loans that are set up on Auto pay. If so, write these down.
You can also check your credit report to see if there’s anything you may be forgetting.
Once you have gathered your debts, add them up and write that number down. That’s your total debt and these numbers will be what you use to begin the process of snowballing your debt.
Save an Emergency Fund
This is crucial to getting AND staying out of debt. You may be wondering why this would be step 2 and asking how and why should you be saving for an emergency fund when you can barely make the monthly payments.
Well, let me tell you…Life will happen!! If the car battery dies, you blow a tire or someone gets sick, your first reaction is going to be to put that crisis on a credit card. Therefore, you dig yourself a little deeper into the debt hole. Don’t let this happen. An emergency fund is insurance against life’s little crisis.
If you need help on why and how to get started with an emergency fund, check out this post, A Simple Guide to Starting An Emergency Fund.
Communication
I can’t stress this enough! You have to communicate with your significant other about your finances.
The best way to do this is to actually set an appointment on your calendar and have a budget meeting. This way you can talk out and discuss any issues, from purchases & goals to everyday household spending and getting out of debt.
Making a budget and working through your debt is almost impossible if you are on different pages as your spouse. You must be in total agreement about doing this as well as why you’re doing this.
Many times there are going to be disagreements about how you are going to do things and that’s ok. Everyone has an opinion. That is what you need to work through. But, in order to make a budget work, its going to take a commitment from both parties, to be able to implement and stick to it.
Use the Debt Snowball
This has been the most successful way that I have found to knock out debt. It works because it allows you to have small wins along the way and it gives you momentum. Momentum is what you need to stay motivated and keep going. Getting out of debt isn’t just about the math. Math would tell you to start with the highest interest debt. That’s fine if you’re a math nerd, but human beings need to feel traction. If you have a high balance debt with a high interest rate, it may seem to take forever to see the balance begin to move down. In the meantime, if you feel like it’s never going to move, you have a much higher chance of giving up. That’s exactly why it’s better to start with the smallest balance and achieve a quick win!
If you want to learn more about how to implement the Debt Snowball, here’s a blog post that details it.
Stay Away From Credit Cards!
It’s a proven fact that most people spend more when they pay with a credit card. Somehow, using this little piece of plastic dulls the pain of spending. “But I pay it off every month!” Well, good for you! Unfortunately, most people do not do this.
The average balance most people carry is $8,000! As Dave Ramsey says…”Have a Plasectomy!!” That means, Cut them up and get them out of your life!! Nothing good will ever come from them! Wealth is not made from getting rewards or points from a credit card.
Lower your interest rates
As I said above, the best way to not have credit card debt is to stay away from them. But what if you already have credit card debt? If that’s the case, find out how much interest you are paying. If it’s higher than zero, you may be able to do something about that!
Lowering your interest rates on credit cards can easily be done with just a phone call.
Call the customer service number on the back of your card and tell them the reason for calling is to lower the interest rate on your card. If they ask why, just tell them that it would make it easier to fulfill the payment obligation you have to them.
In the past, I have done this several times. Almost always, they were able to help. They don’t want to lose your business. Only once or maybe twice was I completely turned down. When that happened, I shopped for another card that had a lower interest rate or better yet…a 0% rate. I never bothered with 0% interest rates unless I could get them for at least 9 months to a year (or more).
By making a simple phone call and doing a little negotiating, you can save a bundle in interest and put that difference toward your debt.
Of course, I’m not a fan of using credit cards, so once you negotiate a lower interest rate, my advice is to pay off your balance as fast as you can and cut up your credit card for good!
found money goes to debt!
Found money consists of tax refunds, gifts..i.e.birthday money, bonuses or any type of money that maybe you weren’t planning on. Instead of using your “found money” to take a trip or buy stuff that you really don’t need, throw it at your debt! Don’t think of it as fun money. The fun will begin once you are debt free!
Lose your pride!
This may be a tough one for some. You have to be willing to accept what God says about money and debt. “The borrower is slave to the lender”. Your creditor becomes your master. Maybe that’s why it’s called Master-Card…haha!
Stop trying to keep up with the Jones’. They’re probably in deeper debt than you are. It’s just not that important to drive the latest, greatest car or carry designer purses, if you can’t afford it. No one really gives two hoots about what you drive or what you have hanging on your arm. Don’t put your future at stake to impress people that you really don’t know or care about. That’s all I’m saying.
Be Intentional
Devise a plan and stick to it. This is also called ‘setting a goal’. Once you decide that your going to do this, be intentional! Get intense! Don’t let anyone or anything get in your way! Be willing to be a little weird among your peers. In today’s society, normal is being in debt. Break away from this mantra and stop being normal.
Embrace Frugality
Frugal should not be a bad word. Frugality simply means being careful in the use of one’s money or resources. To me, being frugal means to stop spending money on things that we don’t need. By the same token, living frugally also means to not be wasteful and to live simply.
When you decide to live a frugal life, you learn quickly, the difference between a want and a need. As consumers, we are bombarded constantly with media telling us what we need. Falling prey to this can be extremely damaging to our finances. Avoid it at all cost if you can!
Budget, Budget, Budget!
One of the most important keys to getting out of debt is the budget. Without one, you are doomed to fail. This is the road map that is going to get you to your destination of freedom from debt. Devise a plan, implement it, stick to it and follow through. Here is the link to my Budgeting Tips for Beginners to get you started.
Increase your income
When you are trying to implement and expedite debt reduction, it may be necessary to increase your income, even if it’s temporary. Here are some ways, to name a few: Sell stuff! Craigslist, Ebay, garage sales & Facebook. Take on a part time job, deliver pizzas, open an Etsy shop if your crafty, babysitting. You’re only limited by your imagination.
Cut Household expenses
When you’re trying to get out of debt, you need to cut as many expenses as you can, to..the..bone! Start by looking at your bank statement and credit card statements. This will help you to better see where your money is going each month. What, besides food, utilities and shelter, are you spending your money on? If it’s not an absolute necessity (HBO, Golf channel, etc., come to mind), then cut it.
Look through grocery receipts and see if you spend a lot on convenience foods. This can be a huge savings because, let’s face it. We pay a price for convenience.
Remember…these cut backs don’t have to be forever. You’re trying to achieve a goal of being debt free. We can do just about anything if we can see a light at the end of the tunnel.
get rid of high car payments
For so many, car payments are one of the main culprits of our debt woes. If you’ve ever listened to Dave Ramsey, you’ve probably heard him say that the total value of your vehicles should not be more that 50% of your annual income. That means, if you make $50,000 a year, you should NOT be driving a $40,000 car. Period.
If car payments are part or all of your problem, sell it as quickly as you can and get a car that you can pay cash for. Remember, this doesn’t have to be forever. As soon as your debt’s gone, you can move up in car. “If you”ll drive like no one else, later you can drive like no one else!” ~Dave Ramsey
Implement “No spend” Days/weeks/month
This is an excellent way to free up money and challenge yourself, at the same time. I do this often when it comes to grocery spending.
So many times, when we run out of a few items, we run to the grocery store, but it usually costs us way more than planned because most of us have that mind set that if I’m already here, I might as well pick up this or that. The best way to combat this is to not go! Making do with what we have can potentially save you hundreds of dollars.
If your weakness is clothes shopping, try implementing a “no spend” challenge, here. The truth is, most of us have more clothes than we can possibly ever wear. See how long you can go by wearing what you already have.
Stay Focused
I put this last because without focus, none of the other “get out of debt” strategies will matter. Keep your goal out in front of you. Focus on how your life will change if you don’t have a payment in the world. You can work when and where you want, you can work less, you can travel, you can do pretty much anything you please when you aren’t a slave to the lenders.
Most importantly, focus on how you will feel physically…to be out from under the stress of wondering where your paycheck went!
final thoughts…
If this is too overwhelming to think about or you think it’s impossible to get out of debt when you’re broke, ask yourself this age old question. “How does one eat an elephant?” Answer…”One bite at a time!” Getting out of debt is not easy. The main thing is to start! It will get easier and easier if you stay focused and remember the reason you are doing this.
Yes…You will have to make some sacrifices and you can expect to make mistakes. It will take some time, but in the end, anything worth having is worth waiting for!
What are some ways that you have found to stay focused and get out of debt?
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