10 Effective Ways to Pay Off Debt On a Tight Budget

Are you drowning in debt and do not know how you will pay it off? You are not alone. Before you start repaying debt, take a moment to identify the kind of debt you have – is it credit card, student loan debt, mortgage debt, or something else – and determine how much obligation you have.

Understanding your loans' type and amounts can help you develop a personalised plan for debt payoff. Getting out of debt is not easy for anyone, but if you don't have much money to spare, it becomes a little tricky.

Here are ten smart ways you can unload it.

Make a Budget

A budget can help you make better decisions about your money and a gist of how much you can afford towards your debt monthly. Never try to manage your expenses in your head; checking the numbers on paper lets you see the bigger picture. Your budget helps you decide where you can free up the extra money to pay the money you owe.

Know the Difference Between Being Broke and Overspending

Are you using the word "broke" to tell others what happens after you've spent all your money on unnecessary expenses? If yes, you are telling it wrong. Make changes on how you spend to create extra room in your budget, and if you have no money left, don't make impulsive purchasing - buying unnecessary things.

Put a Plan in Place with Wizely

Paying off debt should always start with a plan, without thinking twice about how much money you have and even if you can't pay it in one go. Make a list with the balance and interest rate in front. Prioritise the accounts, for example, the highest interest rate debt first, the lowest balance first, or any order you prefer. Create a custom plan to pay off your debt amount on Wizely and contribute towards it regularly. The motive should be to pay as fast and as much as you can on an account instead of spending all of them together with equal amount value.

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No More Debt

If you're continuously adding more debt to your balance, you might not get out of this. Hide your credit cards someplace foreign but don't close the accounts because that will affect your credit score. Do not apply for more loans. If the new debt increases, it will create additional strain on your income. It will be challenging, but if you're serious about paying off debt, it's suitable that you find a complex way.

Cut Down Your Expenses

Review your monthly statements to check where you're spending too much. For each purchase, ask yourself if it's an expense you can live without or not. Remember, you're not just cutting costs, but it is also so you can get out of debt as soon as possible. It's a worthy goal. You can also make some temporary sacrifices but add them back again when debt-free.

Read more: How to Categorise Your Expenses: Why Is It Important?

Increase Your Income

Have more than one goal, to make that money grow. Firstly, no longer depend on credit cards to fulfil my needs. Secondly, you can have more money to unload your debt. You can increase your income by doing freelance work, selling things on eBay or Craigslist, or even starting a small business at home.

Get a Low-Interest Rate

High interest rates make your debt clearance slow. A low-interest rate reduces the monthly interest and makes it easy to pay off your debt faster. With a good credit score and history, you can leverage to get a lower interest rate.

Timely Payments to Avoid Fees

Late payments not only slow down your debt payoff process but also doubles up amounts next month with a late fee tag. This will trigger the penalty rate, making it tough to pay off the debt.

Consider Credit Counselling

A credit counsellor or an agency can work with you to review your financial situation and figure out a budget that includes debt payments. The credit counsellor works on a debt management plan (DMP) with your lenders. Suppose your ability to pay your debts is more complicated. In that case, you could consider seeking assistance from a debt relief program as your last resort because it stops payments and includes working with a firm that holds that amount in escrow while negotiating with creditors to settle. Withholding back payments from your lenders can damage your credit score severely.

One Step at a Time

Looking at the debt picture can be a little overwhelming, but remember that you do not have to tackle it all in one go. Focus on one debt at a time can be more effective. Track your progress, celebrate your successes, and keep chipping away until your debt is completely paid off.

(Check out 'Learn & Grow with Wizely' 'to read and learn all about debt and debt management.)

Sakshi Mehrotra

Sakshi Mehrotra