Promoted by Blue Ink Finance.
Budgeting tips when your Personal Debt is High.
Credit card debts and personal loans are the greatest obstacle between everyday people and their potential to live in financial freedom.
Of course, I understand that sometimes getting a small personal loan is absolutely necessary. Unexpected costs like medical expenses can make personal loans the only option.
However, the majority of us have debt simply because we spend more than we earn.
In either case, your number one priority is unlocking those chains of debt that are holding you back.
I’m going to give you some tips for budgeting with hefty personal debt, but first I want to talk about the impact those loans are having on your life.
How much is your debt really costing you?
Over the years that you’re paying off your loans at the minimum repayment, the interest on those items will end up costing you multiple times more than the original borrowed amount - and those endless due dates will haunt you. There’s no freedom in that!
Let me give you an example. You’ll be shocked, I guarantee it!
Let’s say you have around $4,000 of credit card debt, charged at 19.99% p.a. If you paid only the minimum monthly amount, it would take 37 years to pay off the total debt.
How much will that $4,000 debt cost you? $19,200. Depressing, isn’t it?
You might feel like you need a full-blown money explosion to get out of debt, but don’t despair just yet.
What you need to do is arm yourself with a strategic budget, and I’ve got some tips to help you.
Budgeting while you have hefty personal debt is tough, but possible – and it’s essential for eliminating that debt forever. Let’s have a quick look at how you can start to tackle that mountain of borrowed money.
It’s time to take charge and break some chains!
There’s a method for reducing debt that has an excellent success rate, if you’re committed:
- Make a realistic budget (and stick to it)
- Reduce your expenses and/or increase your income until you are in the black
- Save an emergency fund first
- Pay off your personal loans and credit cards, starting with the either the smallest debt first or the debt with the highest interest rate
- Revise your budget as you go along.
Why an emergency fund is paramount to success
You’ll see I’ve put saving an emergency fund before paying off your loans. Even a small amount initially, like $500, is enough to stop the cycle of borrowing to pay bills, then paying out even more in interest each month, which leaves less in the bank to pay the next bill.
Once you have a buffer saved, then you can start aiming some serious firepower on your debt, and that’s when it gets exciting!
Think back to my credit card example. If you upped the payments each month from $84 per month to $212, you would have the card paid off in two years and save $14,285 in interest. That’s worth a little bit of effort, wouldn’t you agree?
Tips for a budget that works
You may need to cut back drastically on your expenses to clear your debt, but here’s some other ways to make the most of your budget:
- Find micro-ways to reduce your expenses every day. Make work lunches at home, cancel a pay TV subscription, find a better phone deal, or pass on your afternoon chocolate bar from the vending machine. Instead of spending $40 on a takeaway dinner, have a bowl of cereal!
- Find a friend who will keep you accountable. Having someone else who shuns a pricey outing to the day spa for a walk along the beach instead will make you feel better about saying ‘no’ to expensive events that will blow the budget.
- Refinance your home loan to release some funds. If you have a mortgage, talk to us at Blue Ink Finance about the possibility of refinancing your home loan to allow you to release some equity to help clear your high interest, personal debt. It’s not always the best strategy, but it’s worth investigating, especially if you can consolidate it into a home loan that has a significantly lower interest rate.
- If your income increases, leverage it! The only place that extra money should go is into paying off more debt. Enough said!
- Refine and polish your budget as your circumstances change. Your budget shouldn’t stay the same. As you find more ways to decrease your expenditure and become adept at sticking to your financial plan, fine-tune your budget to reflect your savvy saving. Any spare change goes directly onto your debt.
- Automate payments of bills, so you don’t spend the money first. This saves you from late fees if you forget, too.
The reality is that you won’t have a profitable budget until you get rid of that high-interest debt. The beauty of a budget is that it can get you there! Knock the debt, stay away from borrowing except for assets like property, and you’ll have a well-oiled financial plan that kicks goals instead of paying lenders!
At Blue Ink Finance, we have a team of expert brokers as well as a panel of industry experts that understand all the nuances of positioning your personal finances to kick real goals with Property Assets and can support you in achieving your goals.
Give the team at Blue Ink Finance a call on 1300 888 796 or click here to request your Complimentary Finance Review with one of our experienced Finance Coaches now.
And see how having a panel of industry experts on your side, can fast track your property goals.
About The Author
David Wegener
Chief Executive Officer
Blue Ink Finance
 | Who I am, and why I want to help you succeed. As an award-winning Mortgage Broker with nearly 20 years’ experience in the finance industry, I’ve seen it all. I’ve gone through constant industry changes and yet I still successfully help my customers borrow the money they need to get ahead. As a Finance Coach, my goal is to help you understand your financial potential so that you can borrow with confidence. |
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great article Cate Bakos!
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