Being in debt is not a pleasant thing. And though everyone likely knows that, debt is a painful experience many often endure for a long time. Some people find themselves in debt because of low income and other financial issues. Others think living in debt is a normal way of life. Regardless of your perception, debt can take a severe toll on your financial freedom and overall livelihood. While going into debt doesn’t seem like a problem at first, at some point, you’ll have no other option than to repay. Failure to do so can lead to repossession of your assets and property, and when that happens, life isn’t so sweet anymore. Want to get of debt and keep it that way? Here are five steps to becoming debt-free.
Make a conscious resolution to stop borrowing
Being debt-free starts when you make the decision to stop borrowing. Stop using loans to finance your lifestyle. No more loans for furniture, cars, or any other thing you want to buy. Stop signing up for credit cards and live within your means. This will allow you to focus on your current debt instead of amassing more. Determine how much money you currently owe. This includes the number of debts you have, names of the creditors, interest rates, current balance, and minimum monthly payments. Develop a game plan to pay them off quickly and reasonably. This may require going without some of the luxuries you currently enjoy.
Start an emergency fund
Developing an emergency fund is key if you want to prevent the necessity of borrowing. An emergency fund will help you sort out unexpected bills and expenses without going to the bank for a loan. Knowing you’ve planned for a rainy day will make you feel more relaxed and at peace. Start with as little as $1,000 and grow your account over time. In order to contribute money consistently to your emergency fund, make small budget cuts where you can by eliminating unnecessary expenses. Channel the cash you would normally spend on fun, but not essential, activities to your emergency fund. Consider selling items you no longer use and add the money to your account.
Establish a budget
You must create a realistic budget and stick to it. The budget should track your income and expenses for both short and long periods. A budget will clearly indicate whether you have money in surplus or if you are in the negative. In this case, your goal should be to increase the surplus and use it to pay off the debt. In order to do that, you may need to get a second job to earn some extra cash. You can also gain surplus by trimming your expenses. Go over the list of items in your budget and determine whether you can survive without some of them. Slowly you’ll be able to save extra money to put toward paying off your debt.
Organize the debt
You can eliminate debt more quickly if you know exactly how much debt you have and how you plan to handle it. List all the debts you have, from the smallest to the largest; the order should also be based on the repayment period and the terms of each loan. This will allow you to map out a repayment plan that is quickest and most convenient for your situation.
Ask for help
Getting out of debt on your own is tough. Experts will offer tips on how you can not only pay off your current debt, but also avoid debt in the future. Seek help from professionals like Steve Down. Steve is the author of Financially Fit for Life and he has a program that helps you become debt free in five years or less. There are several other financial advisors out there and much of their content is free. Search for them, read their books, and even ask them questions. The help you need is within reach, so go out and get it.
By: Kevin Faber