Spending tips & paying off debt strategies you should know

Knowing what to do with your income is the key to financial security. 

No one likes living paycheck to paycheck, but it's easy to get in over your head without a proper budget, spending strategies, and debt payoff methods. Here's what you must know.

What is a Budget, and Why is it Important?

Creating and using a budget is the only way to reach your financial goals. 

Tracking your income, expenses, and spending will help you understand your financial situation and what decisions you must make. 

It also helps you realize any financial mistakes you make.

The key is to avoid debt as much as possible, making the most of your money and ensuring every dollar goes where it should. 

Ideally, your debts shouldn’t take up more than 30% of your income, or it becomes difficult to reach your financial goals.

Envato/MariaSiurt

Financial problems and economic crisis concept.

When you make a budget, you can determine how much you can afford to spend. 

But, if you spend more than you have and must use credit cards to make ends meet, it's time to cut back. That's why creating and using a monthly budget is imperative.

Beyond using a budget, though, there are other ways to avoid debt.

 

How to Avoid Debt

Debt may feel like a part of life, and often it is, but it should remain limited. For example, buying a house or a car results in debt, but it's often good debt.

Other debts aren't as good. Consider these tips to ensure you don't get in over your head in debt.

  • Increase your income

Envato/torianime

money investment

Increasing your income makes it easier to make ends meet. It also decreases your debt-to-income ratio. If you’re already in over your head in debt, with a debt-to-income ratio (DTI) much higher than 30%, starting a side hustle or part-time job can help increase your income and decrease your DTI.

  • Be prepared for emergencies

Emergencies will happen; it’s a fact of life. Having an account with enough funds to cover expenses for a few months can offset the risk emergencies can cause and eliminate the need for credit card debt. Make funding an emergency fund a priority

How to Payoff Your Debt

If you've gotten into debt, it's important to have a debt payoff strategy to get out of it. These tips will help you pay your debt off fast.

Revisit your Budget

Envato/hallaarabi

A laptop on a desk with a budget figure

Consider revisiting your budget and cutting back on unnecessary expenses. For example, cut out unnecessary shopping, dining out, or memberships you don’t need. Then reallocate those funds toward your debt payoff efforts.

Consider Debt Consolidation

There are many ways to consolidate debt. For example, you may qualify for a 0% balance transfer APR (Annual Percentage Rate) if you have great credit. 

This allows you to pay your debt off faster without interest charges. 

Even if you can't get a 0% APR, you may get a card with a lower interest rate. This may save you money on interest and allow you to pay the debt off in less time because it frees up more money.

Consolidating debt also makes the payments more manageable since you only have one payment versus multiple payments.

Try These Debt Payoff Methods

There are two debt payoff methods to consider —debt snowball and debt avalanche. 

The Snowball Method

The debt snowball method is for people who need 'quick wins' to stay motivated: