Budgeting to Pay Down Debt
A workable budget is crucial if you want to get out of debt.
Whether you have mounting credit card bills, unsecured loans or unpaid arrears, you’ll need a detailed financial plan if you want to reduce your debt.
Addressing your financial situation can feel overwhelming at first, particularly if you’ve been avoiding dealing with your debts.
However, acknowledging the situation and finding a way to improve your finances is a great feeling.
To get a head-start, take a look at these top tips for creating a foolproof budget:
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1. Understand your income
How much money you have coming in is the cornerstone of your budget, so it’s important to get it right.
Don’t simply jot down your salary because this won’t necessary take your tax liabilities into account.
If you’re paid an annual salary, take a look at your monthly payslips to see how much it really equates to.
Alternatively, if you’re paid an hourly rate, calculate your income based on your guaranteed number of hours.
Once you have this figure, you can subtract tax and other liabilities to give you your minimum monthly income.
Calculating your income can be tricky if you’re on a zero-hours contract, particularly if your work tends to fluctuate.
With a varying income, however, a careful budget is essential, so look at the average amount you have coming in every month to give you an idea of what your revenue is.
If your work is seasonal, base your figures on the last three years of income and create a like-for-like budget for every month.
2. Track your expenses
When you first create a budget, you might start by putting in rough estimates for the costs you’re unsure of.
Although this is a good way to get started, you’ll want to be a little more detailed.
When you’re more accustomed with how to budget and get out of debt, you’ll see just how important it is to keep detailed records of your outgoings.
Once you know exactly what your expenses are, you’ll find it easier to make accurate calculations and manage your budget accordingly.
Some expenses are easier to identify than others.
You may pay a set amount of rent each month or pay the same amount every month for a subscription, for example.
Other bills may go up and down throughout the year, so like-for-like averages based on the last three years can be a good way to budget for these costs too.
Although people usually remember to include big bills in their budgets, they often overlook the smaller, seemingly insignificant costs they incur on a daily basis.
However, every penny counts when you’re on a budget, so make a note of everything you spend or track your outgoings on an app.
When everything is there in black and white, you’ll be able to see exactly where your money is going and which expenses you can reduce.
3. Factor in savings
If you want to get out of debt as quickly as possible, you’ll need to pay more than the minimum repayments on your outstanding balances.
To do this, you’ll need to save some of your monthly income and direct it to paying off your debts.
When you’re creating your budget, be sure to include ‘savings’ as an expense.
While it can be tempting to treat yourself to something nice with any leftover cash you have at the end of the month, this won’t help you to reduce your debts.
With some extra restraint, you can get yourself out of debt more quickly and begin enjoying a more frivolous lifestyle without the burden of excess debt on your shoulders.
Access Debt Relief Services
Planning a workable budget isn’t always easy, especially if you’re constantly worried about your outstanding debts or your financial situation.
Fortunately, help is available.
By accessing debt relief services, you can get personalized advice regarding your finances and take positive action to reduce your debts.
At Bankruptcy Canada, we’ve helped over 200,000 deal with their debts, and we can help you too.
With no risk and no obligation, you can talk to a dedicated trustee in confidence and get the support you need.
If you’d like to find out more about reducing your debts or you want to access debt relief services, contact us now on (877) 879-4770.
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