Managing credit card debt may seem insurmountable at times. A cash budget is one tool you can use to tackle this debt and create new spending habits.
How a Cash Budget Helps With Credit Card Debt
Somewhere along the line, spending may have gotten the best of you, or perhaps there was an unexpected medical bill that created credit card debt. No matter how it happened, now it must be paid back.
A cash budget can help you make changes to your spending habits. Using cash is a great way to really see and feel your money being spent. It can be an excellent saving motivation as well. To combat poor spending decisions or to simply reduce overspending, try a cash only budget.
Creating a Cash Budget
There are basically two ways to execute this kind of budget: a cash only budget or a partial cash budget. A cash only budget is an extreme but very effective route. A partial cash budget, on the other hand, targets key areas of overspending in a budget. Both can help you get out of credit card debt.
To start, make sure you have a current and accurate monthly budget. Try using our household budgeting worksheet (PDF or Excel) if you need to begin budgeting and tracking spending.
Using Cash for Certain Expenses
If you decide to try a partial cash budget, find the areas in your budget where you tend to overspend. For my family, it’s groceries. There are many months that end in some weird dishes made from what we have leftover in the pantry or a meal or two at mom’s.
However, we are very successful and properly fed when we use a cash-only grocery budget. It’s more transparent and direct; we can see what has been spent and how we need to spend/eat moving forward (think less guacamole, more PB&J).
Using an All Cash Budget
For an all cash budget, make every effort to pay all your bills in cash. You may need to change some of your automatic bill pay options, and be sure to set aside time to deliver cash to your creditors. If there are certain expenses that you cannot pay in cash, use a check or money order so the money withdraws directly from your bank account.
An envelope system is one simple way to organize your cash into categories. You can see how much each has left as the month progresses and easily transfer funds between categories as necessary.
Whether you choose just a few categories of cash only or transform most of your budget, a cash budget can be an effective debt reduction tool.
To speak to a credit counselor today about budgeting and managing your finances, call 800-769-3571.