Debt is a common financial issue that many people struggle with. You may have been carrying a high balance on one of your credit cards for years, and you may have finally decided to take action to pay that debt off. Perhaps you are heavily burdened by debt and are struggling to make ends meet.
You may have even taken out emergency loans to make your payments on time. You may have no other choice than to take significant action to bring your debts under control. Regardless of your current financial status, you have a few options available.
You can either increase your income to pay your debts off more quickly, or you can reduce your lifestyle to free up additional funds for debt reduction. A closer look may reveal which option is best for you.
The Impact of Increasing Your Income
There are several ways to increase your income, and the most obvious one is to take on a second job. By increasing your income, you may very well bump yourself into a higher tax bracket. This means that you could face a higher tax bill than you are prepared for, and you may even fall into debt with the IRS.
If you choose to apply for a second job, carefully review the tax impact this will have on you, and ensure that you allocate enough withholdings to pay for the debt. Most second jobs have a very low rate of pay, and allocating a large chunk of this income to tax withholdings may make the take-home income much less than you would like it to be.
The Result of Living Frugally
After you have learned more about the experience of a second job, you may be inclined to take the other path and to live frugally. Living frugally is often easier said than done. For many people, debt is the result of the individual living a certain lifestyle.
Making lifestyle adjustments, such as eating all meals at home, clipping coupons, carpooling to work, giving up cable TV, and more, can be harsh adjustments to make. It may take you many months or even years to fully eliminate your debt, so you need to find an arrangement that you are comfortable with and that you can live rather happily with.
Finding a Happy Medium
As you can see, there are significant downsides associated with taking on a second job as well as with living frugally. A smart idea is to find a happy medium between both options. For example, rather than work as many hours as possible at a full-time job, consider only working a single eight-hour shift on Saturday or Sunday.
This will keep your income generated from the part-time job lower so that you may not bump yourself up into another tax bracket. You will need to review the tax brackets to confirm this. Then, you can make modest improvements to your lifestyle. For example, you can take a brown bag lunch and scale down your cable plan without eliminating it entirely.
Each person has a unique budget and a unique desired lifestyle. They also have various levels of debt that they want to pay off. Some may find one of these options preferable, and others may decide to find a middle ground that partially incorporates both options. By analyzing the situation more carefully, you can create a great debt reduction plan that works well for you.
Image source: Freepik Premium