How to Pay Down Debt & Save
- 1). Create a monthly spending and savings budget. Make a list of all bills and debt and the amount of each, as well as your income and savings. Determine your monthly expenses, how much debt you have and the extra dollars you have to apply towards debt and savings. With the extra amount, decide how much you plan to save and how much you plan to use to pay down debt.
- 2). Review where you can minimize spending and maximize savings. Expenses such as food, entertainment and gasoline, and hidden costs such as cable and satellite radio, may be variables where you can find cost savings. For instance, forgo one night of eating out to save a few dollars on a monthly basis.
- 3). Set up your paycheck for direct deposit, as your employer allows, for a dollar amount or percentage to go directly into your savings account. Do not touch this savings account until you have built up significant liquid assets, such as 6 to 9 months of living expenses. If you do not have access to direct deposit, take a set amount from each check and deposit it in your savings account before paying any bills.
- 4). Use the snowball method to pay down debt, one creditor at a time. With the snowball method, you pay down credit cards or other debt one at a time, starting with the debt that has the highest balance or interest rate. Using a snowball calculator, input each debt balance, not including fixed-loan payments, such as car, mortgage and student loans, and the monthly dollar amount you plan to apply toward your debt. The calculator will display the number of months or years required to pay down your debt.
- 5). Find ways to bring in more money. Try working a second job or more hours; seek out freelancing opportunities. The more that you earn, the more money you will have to put into savings and pay down debt. Working hard now will give you more financial freedom later. Adhere to your new plan; revisit it after a few months to determine you need to make changes in your spending or income.
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