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A Guide to Budgeting Whilst Paying Off Debt

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Paying Off Debt

In 2019, it was reported (UK Debt Statistic) that around 63% of UK adults were in some kind of personal debt. If you’re reading this, worrying about your debt, you are not alone. Society is slowly opening up the dialogue surrounding debt. In fact, there is now a large, online community who are devoted to supporting each other out of debt and sharing ways to cope with financial stress. In the current UK economy, saving money and stretching our pound has never been more crucial. Soaring energy bills and rising inflation costs are the bane of everyone’s life. The nation is united in its frustration, which is why we must support one another in Paying Off Debt.

Paying off debt can seem like an uphill battle, with life’s costs being the enemy. This is why a lot of people , paying off debt, create and try to stick to a regular budget, to help keep track of their spending.

This article will explore a tested method of budgeting when trying to get out of debt as well as provide you with some ways to cut costs in your life. 

However, if you find yourself in financial hot water, don’t panic. We recommend that you contact a Mckenzie Friend, for affordable debt advisors, committed to achieving debt resolutions for all who come to them. You can save money on expensive legal fees whilst also getting support for your financial problems. 

But for now, let’s take a look at why and how you can budget better when paying off debts. 

Why should I budget?

There are a number of benefits to budgeting that will help you pay off that debt. These include the following:

  • You get a clear, visual breakdown of where your money goes every month
  • You will be able to pinpoint the amount of income you can afford to put towards paying off your debt. This will make it seem more manageable and can help ease your worries.
  • You can still dedicate money to non-essential things i.e meals out, making saving less of an arduous task. This can help keep you motivated and remember that not all your money is going on paying off your debts.

Everyone’s debts are different and each case is unique. However, these budgeting tips aim to help as a general guideline for those who need them. The reality for some is a lot harsher and requires more action. If you are struggling and are in need of affordable debt advice, contact a Mckenzie Friend today. 

How to budget effectively

Should your situation allow it, we would highly recommend creating and sticking to the budget we are about to discuss. 

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Budgeting effectively requires commitment and self-control. The budget you create needs to be realistic and firm at the same time. If history has taught us anything, being too strict with your budget is ultimately demotivating and counterproductive. Being realistic about your expenses can help you to pay off that debt quicker as well as improve your mental well-being regarding the situation. 

Overall, it is important to allow yourself some breathing room with your money whilst still putting enough of your pay cheque aside to pay off your debts. 

For this, we recommend trying the simple 50/30/20 method. 

It’s easy… 

  • 50% on necessities 
  • 30% on wants and discretionary spending 
  • 20% on paying off debts/savings 

Example –

  1. You start with your monthly income after tax. For this example, we will use a monthly income, after tax, of £1,500.
  2. 50%, £750, of that is allocated to your necessities, for example, rent, utilities, food and car payments. 
  3. 30% of that, £450, is given to wants and discretionary spending i.e meals out, entertainment etc 
  4. 20% of your money, £300 is allocated towards paying off your debts or topping up your savings. 

These simple steps will create an easy system, which will help you divide up your money into different spending categories. 

The system allows for an effective budget without completely abolishing spending for pleasure. You can have peace of mind that your basic expenses are covered (50%), with money remaining for discretionary spending (30%) and money to pay off debts (20%).

What if the 50/30/20 system doesn’t work for me?

Another great thing about using the 50/20/30 system is the flexibility that comes with the style of budgeting. If you feel you want to put more towards paying off your debt, or you have more expensive rent and bills, you can simply change the ratio of your budget. The percentages are flexible and you can adapt them to suit you and your debts. 

For example-

50/30/20 may turn into 60/20/20

(60% on basic expenses, 20% on pleasure, and 20% on debt payments)

Or

50/30/20 may turn into 40/20/40

(40% on basic expenses, 20% on please, and 40% on debt payments)

The choice is yours. However, the use of a numbered ratio can help you stick firmly within your budget every month.

How can I reduce my spending for each category?

There are some simple ways in which you can lower your spending on basic expenses and discretionary spending. 

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Check out these simple tips to help stretch your budget even further:

Saving on basic expenses (50%) – 

Basic expenses include life’s necessities. Costs such as rent, mortgage payments, utilities, and groceries. Any essential payments that must be made every month.

  • Turn appliances off standby to ensure that they are not drawing power and you could save up to £30 a year.
  • Limit the number of laundry loads you do by just one cycle a week and save £5 a year 
  • Switch to LED lights for more energy-efficient lighting, which can save you around £35 a year on your electric bill. 
  • Turn down your thermostat – turning it down by just one degree can save you £80 a year.
  • Make a list before going food shopping to reduce the amount of impulse buys you come out with. This will save you money as well as waste!
  • Take cash with you to the supermarket instead of your card. This way, you are almost forced to stick to your strict budget.

Saving on wants (30%) – 

Discretionary payments are the things you spend money on that you want but don’t need. When budgeting, needs are certainly more important than wants.

  • Cut back on subscriptions that you don’t use that much. I.e if you’re only using Netflix for one show, maybe think about cancelling it
  • Use free coupon sites such as Groupon and Wowcher to save money on entertainment purchases and experiences
  • When out for a meal, don’t leave any leftovers. Restaurants are used to masses of waste, but you should save the other half of your meal. Simply ask for a to-go box and enjoy the rest of it tomorrow
  • Take advantage of the offers chain restaurants usually have. A lot of restaurants in the UK offer great deals when you sign up for their app or newsletter. Do some research and find out what freebies and discounts you can find to save money!

Finding extra money to help pay off debts/put into savings (20%) –

  • Sell anything you don’t use. Whether its clothing, appliances or that old chair you need to get rid of, sell sell sell! People often make good money selling their unused possessions on sites such as Depop, Vinted and Facebook Marketplace. 
  • Rent out your spare bedroom or space. This can get you a steady stream of extra income, and can largely help to pay off debts.
  • Do some odd jobs that can fit around full-time employment. This may be freelancing, tutoring or other smaller jobs. 

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