Your Step-by-Step Plan for Creating a Budget to Get Out of Debt

If you hope to buy a home, being in good financial shape is a must for making that an achievable goal. A high credit score and money saved for the down payment will provide you with more mortgage options. They will also assist in getting you pre-approved, which helps you look more attractive to sellers.

But if you have a bunch of debt, saving money can seem almost impossible. If your credit cards are maxed out, or you make your payments late, your credit score will tumble. That’s why it’s urgent to lower your debt as much as possible before embarking on your homebuying journey.

Here’s your step-by-step plan for creating a budget to get out of debt.

Know What You Owe

You can’t make a workable plan if you don’t face the facts about your finances. Sit down and review your credit card statements, car loans, student loans, and any other debts. Total up the amount you owe. It may seem overwhelming, but congratulate yourself on taking the first step toward decreasing your debt load.

Add Up Your Monthly Obligations

Once you know the total amount of your debt, figure out how much you must pay on it monthly. This includes credit card and student loan minimums and set monthly payments like vehicle loans. This gives you a starting point of setting up a realistic budget. It also helps you avoid late payments.

Set Goals

It’s smart to set small and large goals, so your actions are always building toward what you want. The big goal is to buy a house. Smaller, shorter term goals could be to pay off one of your credit card balances, or to save the equivalent of one month’s salary. Write your goals down and put a timeline on them, so they aren’t just floating out there as a vague “someday” plan.

Craft a Budget

Write down your plan for managing your monthly bills. Include your loan payment obligations, spending money, hobby money, gas, cell phone, and savings. Add it up and decide which bills get paid when. Do three bills get paid with your first paycheck of the month, and your rent gets paid with the second? This strategy helps you avoid running short.

Stop the Bleeding

It’s time to thwart impulsive spending and shopping as a hobby. You may be surprised how much those dinners out and new outfits end up costing over a year’s time. Put a spending freeze on non-essentials and put the money you save toward your credit card debt.

Cut Expenses

Trim some dollars off your budget. Look at your cable and cell phone plans and figure out how to lower them. Adjust your thermostat to lower your bill. Cancel subscriptions to the gym and any other ones you don’t use. Minimize dry cleaning, frequent manicures, and spending money on expensive hobbies. Scale down your vacations. Use the money saved to pay extra on your debts.

Increase Income

One of the best ways to pay down your debt is by getting a side gig. Even a few extra hours of work a week help chip away at those credit card balances. Find part-time work at the local mall or upscale restaurant, drive for a car service, or deliver food. If you prefer to work from home, get a job you can do online. Be diligent about paying all your extra income toward your debts.

Sell Your Junk

All those things cluttering your house you never use? Sell it all! Either have a yard sale or list it on social media, Craigslist, or eBay. You’ll be surprised how much money you can make getting rid of stuff you no longer use. Selling your junk will give you a tidy lump sum to pay on your debt.

Track Spending

Once you’ve gotten a handle on your spending and created a budget, it’s time to stick to it. Download an app and log your expenses. Doing this gives you snapshots of your spending habits and keeps you on the right track. You can catch frivolous spending habits creeping in before they become budget busters. Plus, tracking your spending holds you accountable.

Celebrate Victories

Reward yourself when you reach every goal. After all, it takes hard work and patience to get out of debt. Try doing something that doesn’t cost much money, like visiting a park or an art gallery. Fun breaks energize you to keep going.

Nobody ever said getting out of debt is easy, but it is worth the trouble. Gaining control of your finances by lowering your debt is one of the best ways to get ready to buy a house. Create a plan and stick to it. With some willpower and restraint, you’ll see your debt decrease as you move toward your goal of homeownership.