Being organized is a key factor to success in pretty much any aspect of life, even simple, everyday things. Think of your closet. If you can’t find that pair of shoes that goes perfectly with your outfit because they’re buried under a pile of clothes in the far corner behind your hamper, well, you may end up wasting 10 minutes looking for them, making you late to meet your friends. Or you may just bag your favorite outfit altogether and end up wearing something you like less and feel less confident in.
The same is true for your finances. Being organized is the only way you can take control and be successful with your money. That requires creating a budget. It’s especially important if you’re in debt and are becoming even more so. Like keeping track of those shoes in your closet so you don’t waste time trying to find them, knowing how much your bills are and when they’re due will ensure you don’t waste money by accruing late payment fees, racking up interest charges or going into default. If you’ve never created a budget before, try our handy explainer on the basics of building a budget.
Here are five ways a budget helps you pay down your debt:
1. You Can Pay Your Bills On Time
If you’re constantly struggling to remember when your bills are due, your budget can help you track that. Writing down all your due dates or entering them into a spreadsheet can help you quickly see exactly how much is due and when (as long as you keep that paper or spreadsheet handy!).
Better yet, once you’ve created a budget, you’ll have a clearer view of your cash flow situation, which means you can see just how much money you’ll have available to pay those bills. At that point, you can consider automating some of your payments to ensure they aren’t forgotten. And if you see any cash flow shortages during the month that will make it hard to pay your bills on time, you can contact the lender or company to see if they can change your due date to a point in the month when you’re more flush with cash.
2. You Can Rein In Your Spending
Being honest in your budget is absolutely crucial. Lying to yourself about your spending habits simply makes no sense. So, if you’re spending $15 a day on lunch, don’t pretend you aren’t or your budget isn’t going to work.
Once you’ve pinpointed all of your spending, it’s much easier to see where you can cut back so that you have more money to pay down your debts. Set a goal of how much money you want to save each week and then figure out where it can be cut.
Do you really need subscriptions to all of those movie and television services? Can you make your own coffee in the mornings instead of buying it?
3. You Can Review Your Income
If you’re in debt, it means you’re spending more than you’re earning. If your budget shows that you’re just not able to cut back on how much you’re spending each month, it’s time to look at ways you can bring in more income. Figure out how much extra you need each month and then get to work finding a solution for your budget gap. Do you have a skill that can help you earn extra money on your days off? Could you ask your boss for a pay increase? Can you work more hours?
4. You Can Formulate a Plan
It’s hard to come up with solutions when you don’t know exactly where the problem lies, but, as we’ve shown above, a budget can help you see clearly exactly why you’re not able to get your finances in order. Once you can see where all of your money is going and just how much you owe, you can implement a plan for getting out of debt once and for all.
Two common methods used to do this are the debt snowball and debt avalanche methods. We’ve put together a handy explainer that can help you implement the right method for you.
5. You Can Enjoy Your Progress
Just like that feeling you get when you get your closet in order, with everything hanging or folded neatly and easily found when you want it, you’ll feel a major sense of accomplishment and ease as you track your monthly spending and watch your debt become less and less (and your credit score go up and up!). In fact, it’s even better than getting your closet organized.
[Editorial Disclosure: PayDownMyDebt.com is a service that provides people with tools to pay down their debts through automatic payments. The purpose of this article, however, is not to encourage users to purchase that service. This article is educational and journalistic in nature and aims to help people learn how to pay down their debt, whether they use our site, another, or go it alone.]