Downsizing is one of the extreme strategies that you can use to increase debt payments. This means you will make drastic changes in your lifestyle so you will not spend as much money as you did. For some people, it is enough for them to simply cut back on some expenses like eating out or other shopping errands. However, some people would need more drastic measures.
Since your housing expenses eat up a huge part of your monthly budget, it can be assumed that this is an area where you can save a lot. Of course, people use it as a last resort because it is very hard to downsize a home. You have to really change a lot of things in your life. You have to get rid of a huge part of your possessions, spend on the moving expenses, etc. But if you are successful, you will really see several positive changes in your finances.
According to one report, people who opted to live in tiny houses significantly cut on rent/mortgage expenses and were able to successfully double their savings. When you lower your expenses after downsizing, you get to open a lot of opportunities financially. One of these is your ability to increase debt payments. When you increase your monthly payments, you can get out of debt a lot faster. If you can shorten your repayment plan, you can save on the interest payments.
Two ways downsizing can increase debt payments
Most of the time, downsizing means you will be living in a smaller home. This smaller space will give your finances a lot of room to grow. Not only that, but it can also increase your debt payments in two ways.
It frees up extra money in your monthly budget
Since you have a smaller home, your monthly expenses will go down significantly. First of all, your rent or mortgage will go down. The value of properties is measured by how big it is. Naturally, that means a smaller house will cost less.
But that is not the only way it can decrease your expenses. A smaller dwelling place will also be cheaper to heat or cool. That means your energy consumption will go down. It is also easier to clean. There is no need to buy a lot of household products for the upkeep of your house.
Since you will be decreasing your monthly expenses, you get to free up more money from your budget. This freed amount can be used to give your monthly debt payments a boost.
It discourages you from overspending
The other way that downsizing that can increase debt payments is through your spending habits. You now live in a smaller house. Before you moved, you probably had to get rid of a lot of possessions. In the same way, your smaller home will require less furniture. Not only that, you will have limited space. You will think twice before you buy anything.
According to one couple who downsized into a tiny house, they developed a new mindset about unnecessary spending. They knew they had limited space so they thought more about what they will bring home. This made them more cautious of every expense.
The same will happen to you when you live in a smaller home. And it is a good habit to get used to. Even if you live in a bigger home, you will carry that with you. Since you got used to thinking twice before buying something, you will always do that before you buy anything.
Downsizing the right way to increase debt payments
Of course, there is an option to earn more money to increase debt payments. But if your credit situation was caused by your inability to control your spending habits, then downsizing makes a lot more sense. You will be teaching yourself to correct the habits that led you to debt in the first place.
However, you should not just downsize and expect results. You need to do it properly. This change will require a certain level of sacrifice. You need to be certain that this is what you really want. Otherwise, you might end up feeling miserable about downsizing.
Here are tips that will help you downsize correctly.
Be clear with your purpose
Start by being clear with your purpose. Why are downsizing? Obviously, your reason is to increase debt payments. But that may not be enough to motivate you. Think of another benefit for doing this. Are you trying to achieve financial freedom? When you downsize, you are effectively lowering your monthly expenses. Once you have paid off your debts, you will need less money to live on. You can probably leave your job if you feel too stressed already.
All of these are possible when you downsize. Just make sure that you open your eyes to all the possibilities so you can pick one purpose that will motivate you as you get used to this transition.
Consider long-term plans
When you downsize, it is also important to consider your long-term plans. As you know, downsizing means you will be living in a smaller home. If you are doing this with your spouse, consider your plans to have children someday. You need to make sure that you have enough room for your future kids.
Or maybe, you plan to work from home. Think about the space that you will need to make this happen. You have to remember that there is life after debt freedom. Although you are downsizing to increase debt payments, you should still consider what you want to happen after.
Create a new budget plan
Finally, you also need to create a new budget plan when you downsize. After all, there will be a lot of changes happening in your financial life. You have to make the necessary adjustments. You also have to observe the changes in your bills payments. Make sure your budget plan is updated if you will spend less on your utility bills and mortgage. This will ensure that you can adjust to the new life properly. You might end up using all the money you saved from downsizing on something else – instead of using it to increase debt payments.