How to get out of debt - Tonking Around

Learning how to get out of debt and actually doing so, IS possible. It was possible for me and my husband and it is possible for your family too.

Debt feels like a necessary evil at times, doesn’t it? But when you are in debt, you can really understand how stressful it can get. But worry not, It is possible to get out of debt.

We all know the basics of paying off debt, right? Spend less than you earn, prioritise your bills, cut out all other expenses. Make a budget and stick to it. And pay off your smallest debt while paying minimum payments to all your debts.

When you are debt free, you have this feeling of weight being lifted off your shoulders. And let’s be honest, no matter what amount of debt you have accumulated, it can get quite overwhelming.

But paying off your debt is NOT impossible, even though it might seem like so at times. And in this post, we are going to break down, how you can pay off your debt, and become debt free even if you are broke. These are all steps to pay off your debt, even with a small income but they of course work for everyone.

How can I pay off debt with no money?

I agree it can be a tough situation to be in. When you owe money and are living pay-cheque to pay-cheque.

But there is a way around it.

When I finished my MBA, I had student loans and was in debt. I had a job but soon after I realised that that’s not a job that I love. And I wanted to do something that I am passionate about.

So I made a very tough decision to quit my corporate job and pursue my passion.

It turned out to be a great decision, but at the time, it was a stupid step on my part, finances considered. Because when I quit my job, we were left with one full time job.

That’s when I discovered about Dave Ramsey’s baby steps and we followed them to a T.

And managing your finances, paying off debt, and starting a business, all with one salary is a hell of a task. But we did it.

We are finally enjoying a life where we are completely debt free and are financially stable. And it feels GOOD.

So, in order to pay off debt, with a low income, or when you are living pay cheque to pay cheque, here is what you need to do:

Find out what your monthly expenses are. Don’t suppose that you know it already. Write everything down. And track your expenses for a month.
Check your expenses and analyse where you can save money.
Make a monthly budget and stick to it.
Make a debt repayment plan that works for you

Here are 15 things that you need to stop buying to save more money this year.

Understand why you are in debt:

Understand why you are in Debt is one of the very first steps that will help you get out of it.

Is it because of student loans? Or is it for something you didn’t need at all? Un-necessary spending can become a habit, especially when paying from your credit cards is so easy.

A lot of the times, people tend to spend the money that they don’t have and that’s what the credit card companies actually want. They want you to spend more than you can re-pay, so that they can charge an interest, which keeps getting higher with the more debt that you accumulate.

One thing you need to understand though, is that most of the un-necessary expenses are a result of poor money habits. Here are 9 money habits you need to adopt right now, if you want to be financially stable.

Can’t I keep just paying the minimum payments?

Sure you can. But it would mean that you are driving your payment term to the longest time and that of course mean that you will be paying a hell of a lot in Interest.

And that’s exactly what your credit card companies want. They want to push your payment term for as long as possible because they want more interest from you.

STEp 1: Find out how much you owe?

This is a tough one.

Not because it is a hard thing to find out the numbers and all, but simply because it is quite an emotional thing for people. When you are first looking at the debt you owe, it can feel daunting. And it can feel like you will never be able to repay it, but you CAN.

Most people tend to skip this step altogether, because they are afraid to write the number down on a piece of paper and accept their reality. But if you want to replay the debt quickly, this is a crucial step.

So, on a piece of paper, or a spreadsheet, or your phone, whatever you prefer, WRITE DOWN HOW MUCH YOU OWE. Write down everything.

And if you are not really sure about the details, just call your bank or your credit card company and ask:

How much do I owe?

What is the minimum monthly payment?

What is my current interest rate?

And knowing these things is important because they will help you make a repayment plan that actually works for you.

STEP 2: Calculate your expenses:

It’s time to calculate your monthly and yearly expenses. Write every expense down. Even if it’s just a cup of coffee from Starbucks, write it down. It all adds up. But do so in categories, so that you can make a sense of it later.

And once you are done writing down and tracking your expenses for the month, you will have a clear idea what your fixed expenses are. these are your rent, insurance, utilities etc. The rest of the stuff is not fixed and you are gonna have to make changes there to save more money.

This will also help you understand how much disposable income you have and what changes should you make if you want to pay off the debt sooner.

Here are some of the things you might want to consider:

Do you eat out a lot?
Do you purchase things you don’t need?
Do you have cable tv, Netflix and prime etc but never really watch?
Can you do without your daily Starbucks?
Can you do manicures at home?
Can you move or sublet to save on your rent?

There are of course a lot more and it will depend from person to person. But check your expenses and see where you can cut down and save more.

STEp 3: Make a budget:

This is probably the most under-rated step. Making a budget is extremely important to pay off your debt. But what’s even more important is sticking to the budget.

So make a monthly budget and stick to it. If you have no idea how to make a budget and of the categories confuse you, here is my super simple method to budgeting with only 6 budget categories. It is super simple to make, especially if you are a beginner.

Another great way to make a budget is the ZERO SUM BUDGET, which I have been doing for as long as I can remember.

Whichever method you choose to make a budget, it’s important that you understand it’s importance.

Step 4 : Freeze your credit cards:

When you are on a debt pay off journey, it’s important that you do not keep adding more debt to it.

And once you are done with paying off your debt, you will need to be very intentional about your spending as well.

Here is what you can do to limit your spending:

Whenever you are inclined to make a purchase, give it a day. Do not make impulsive purchases.
Hand over your credit card to your spouse to hide somewhere in the house and not tell you where they hid it.
Cut off your credit card, if you want to spend zero money from it. You can always get a new one once you have paid off your debt.
Literally freeze your credit card in a bowl of water in your freezer, like in the movie confessions of a shopoholic.

You probably don’t need to go to such extremes, but you know what I mean.

Step 5 : Strategise how you are going to pay off your debt:

So, let’s keep this as simple as possible. If you have a single debt, then it’s pretty easy because all the extra money goes to pay off the debt.

However, if you have multiple debts, you have to strategise.

The first strategy is the SNOWBALL method, which has been talked about a lot in Dave Ramsey’s baby steps. It means paying minimum payouts on all your debts and if you have any additional money, use it to pay off the smallest debt you have.

It is a great technique, especially because it gives you that feeling of accomplishment and gives you a quick win when you completely pay off the smallest debt. And that makes you even more motivated to pay off the other debts.

However, there is one fault with the method, paying off smallest debt first isn’t always the right way to go. You could also start with the debt that has the highest interest rate. This way, you will end up paying less money in interest for all your debts combined.

step 6: Refinance your debts:

Refinancing is actually a great alternative to replace your existing home loans or student loans with a new loan. A lot of people get their loans refinanced because the new loan gives them a certain benefit. The common ones being:

A lower interest rate: The most common reason for getting loans refinanced is a lower interest rate. You could potentially save money by getting your interest rate slashed.
Consolidate all the loans: If you have multiple debts, it actually makes sense to consolidate them all in one place. It makes it easy to see and understand the whole situation. And when you do that you also get a lower interest rate most of the times.

Step 7 : Explore a side hustle

What better way to pay off debt quickly than to have more money to begin with.

And the good news is that there are so many online opportunities these days that allow you to make extra money.

From freelancing as a writer, advertiser, developer, to Pinterest virtual assistant, online teaching jobs, the options are endless. And it isn’t that difficult to start either. Take this blog for example. It started out as a hobby, turned into a side hustle and now it’s a full time job( Blogging along with freelance writing that is)

And it’s quite easy to start a blog as well. And if you want to start a blog as a side hustle, it is great to make $500-$1000 extra per month.Here is my guide on How to start a blog that makes money, in case you want to check it out.

And if you do not want to start a blog let’s say, there are still lots of ways to make extra money online. Or you could always request to work a few extra hours at your office or take up another part time gig.

So, to pay off your debts:

You need to know how much do you owe and at what interest rate
Find out what your monthly expenses are & see where you can save money, even it means making some tough choices
Make a monthly budget and stick to it
Freeze your credit cards and don’t add more debt to the existing debt.
Have a strategy to pay off debt
Refinance your debts
Explore a side hustle
Always pay at least the minimum for each debt payment.

Debt free life is possible for you. You just need to prioritise your expenses and stick to a budget.

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