If you’ve been following our blog, then you know that we often talk about ways to start a budget, pay your debt down faster, and save more money. But we know that this advice isn’t always as easy to implement as it sounds. The fact is, finances may be comprised of simple math, but the way they add up in our lives can include a lot more gray area – or even ways to bend that math to work for us!
This is something I’ve learned while working on the Money Makeover Series. Sometimes simply setting a budget or a spending plan isn’t enough. There are times when your income may be lower than your necessary expenditures and things like food and shelter simply can’t get cut from the budget. So what can you do to reverse this and make sure your income > bills? Develop a new strategy!
How to Strategize Your Finances: Consolidate Your Debt
First things first. If you have multiple debt accounts then it can get quite difficult to manage them all. Between the multiple due dates, minimum payments, and interest rates, you’re losing out on both time and money. But if you can consolidate them all into one bill, then you’ll have a more manageable monthly payment, you won’t have to worry about forgetting to pay a bill, and you won’t lose so much money to interest.
Remember, you don’t need a company to consolidate your debt. You can do this on your own! Some popular debt consolidation methods are credit card balance transfers, home equity lines of credit, loans from a local credit union, and peer-to-peer loans. How it works is you would take out one loan, credit card, or line of credit and use that to pay off all of your consumer debt such as credit cards, loans, or other lines of credit (student loans should be done separately and mortgages should only be refinanced). This should leave you with a lower interest rate and only one bill. Final tip: don’t charge any new debt after consolidation.
How to Strategize Your Finances: Choose Your Debt Payoff Method
Once you’ve consolidated, you still may have more than one debt type (or you may not be able to consolidate due to your credit score). If that is the case, then it’s time to choose a debt payoff method. The two most popular debt payoff methods are the debt avalanche and the debt snowball:
Debt Avalanche: This is the mathematically fastest way to pay off debt. How it works is you would pay off your highest interest rate debt first (typically a credit card). Once that’s paid off, you’d apply that same monthly amount to the next highest interest rate debt, and so on until you’re debt-free.
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Debt Snowball: This is when you pay off your lowest balances first and that same monthly amount to the next lowest balance, and so on until you’re debt-free. You’re likely to pay more in interest doing this method, but some find the small “wins” to be more motivational and thus find this easier to maintain.
No matter which method you choose, the most important thing is that you maintain this strategy of targeting one account while paying minimum on all the others. This will allow you to keep a laser sharp focus on your debt payoff and to see results faster!
How to Strategize Your Finances: Boost Your Income
Finally, if you need to switch the balance of income and bills, finding ways to boost your income – even a little bit – can make a big impact! With the convenience of the internet, there are even more opportunities to earn extra money on your own time without having to leave your house.
The best way to boost your income is to evaluate your talents and hobbies and find out if there’s a way to earn money doing them. For example, if you’re really crafty then you can start your own Etsy page. If not on the internet, you can still use the internet to find a part time job. Love kids? Check out websites like Sittercity to see if you can nanny after work or on the weekend. Great math skills? Tutorspree can match you with someone to tutor in your free time. If you get creative and follow your passions, you can earn money while having fun at the same time (and maybe even boost your current career)!
At the end of the day, creating a budget or spending plan can turn into more of what feels like magically stretching numbers rather than simple math. If that’s the case for you, then follow these steps to strategize your finances! By approaching your finances with a more creative point of view and “cleaning” things up wherever possible, you’ll soon have a financial situation that you can manage and control!
Image credit: ivelinradkov