This article is the fourth in a series on how to get out of debt. If you haven’t already, you should check out the previous articles:
- Step 1 – Declare War on Your Debt
- Step 2 – Stop Increasing Your Debt
- Step 3 – Create a Budget & Stick to It
Step 4 – Find Ways to Cut Back & Earn More
Once you’ve created a budget, you have a powerful tool to propel you out of debt. By looking at where your money is going, you can target areas to cut back. First, you can look at your biggest expenses. Finding ways to cut back just a bit (percentage-wise) will give you a large return on your effort. Saving 10% on your rent or mortgage payment will provide you with more extra money than saving 10% on your grocery bill. That’s not to say that the latter is not good, but going for the biggest wins first will help you get the best return on your time.
Next, you can look at the small expenses. Where are the little leaks that are sinking your financial boat? Five dollars here and ten dollars there can add up to a significant sum by the end of the month. Pinpoint a few of your small expenses to target at first. You’ll soon plug all the holes in your boat.
When you’re prioritizing the areas of your budget where you’ll cut back, don’t ignore the personal value you receive from each expense. You’ll find greater success by attacking the items you don’t enjoy very much rather than depriving yourself of small things that make you happy. For example, you’ll feel more satisfied by lowering your tax bill than you will by giving up sweet tea and drinking only water. (I bleed sweet tea so that’s my example.)
Finally, find ways to earn more money. If you can take more hours at work or get overtime, that’s a good way to grab some extra cash. Get a second job, sell your stuff, or start your own side business. You don’t have to completely change careers to earn more money. Yes, you’ll have to give up some of your personal time. But if you really want to get rid of your debt, you’ll be well served by both cutting back and earning more. Combining those two strategies is like fanning the fire. You’ll burn more debt away in a much shorter period of time. (The same could be said for dieting and exercise. You lose the most weight by doing both.)
What do you do with this extra money you find? You’ll first build your savings (so you don’t have to go into debt again). Then you’ll attack your debt aggressively. Every extra dollar you can get will bring you closer and closer to your goal. Be sure to check out the next article to find out why you should build your savings before paying off your debt.
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Let me know how you’re going to cut back or earn more in the comments below!