To eliminate debt is a dream for anyone. We want to experience the freedom of a debt free life but that is not the reality for most of us. Sadly, we were immersed in debt even before we fully understood the implications of credit in our lives. When we went to college, we were forced to get student loans just to be able to afford our education. We were convinced that this is a necessary step in order to give ourselves the best chance to earn more in the future. Then we spend the first few years of our corporate lives trying to keep up with all the payments to help satisfy the requirements of our student loans.
Probably the only time that we experienced debt freedom was when we were too young to understand the value of money in our lives. Our consumerist society dragged us into a debt ridden life that had enough power to control our lifestyles.
Fortunately for you, there are many ways to eliminate debt. There are debt relief programs that you can enroll into like debt consolidation, debt settlement and even bankruptcy. All of these are effective in getting you out of debt.
6 steps towards a debt free life
But if for some reason you do not trust any of the debt elimination programs that seem too good to be true, then you don’t have to. You can always work on your own to eliminate debt. It will be harder and could probably take you much longer, but it can get you debt free. It may also cost you more in terms of payments but it should not be a problem as long as you have the financial capabilities to pay a little extra beyond your minimum payments.
Here are the 6 steps that you need to follow to achieve debt freedom.
Make a list of all your debts. Start by knowing how much you really owe and whom do you owe it to. Find out if there are limitations to the payments or if you are allowed to send in more money towards your monthly contributions. This will help you determine which debts can be included in the flexible debt payment plan that you will work on later.
Create a budget. Once you know how much you owe, it is time to know your financial capabilities in terms of debt payments. Get your net income and list your expenses. You can take your time with the expenses so you can arrive at a realistic amount to put in your budget. Spend a month or two listing down everything that you spend on. Then you can identify the categories that you think need to be spent on the most. Start with the important and basic expenses (needs) and separate those that you can live without (wants). Total the needs and wants then subtract the amount from your income. See if there is anything left for your debt payments. If not, remove the wants and allocate them towards your debts.
Create a debt payment plan. After you have the amount for your debt payments, rank your debts according to priority. You can prioritize the one with the highest balance or your can begin with the lowest balance. Distribute your debt payment fund towards all your debts – enough to satisfy the minimum requirement. Anything left should be placed in your priority debt. Once the first debt is paid off, you will then rollover the freed amount towards your second priority debt. When you finish that, rollover the amount again to the next. You will repeat this until you have gone through all your debts.
Build up your emergency cash fund. While you are paying off your debts, make sure that you put in even a small amount towards your emergency fund. This reserve fund will help support your funds to eliminate debt and your basic needs in case something happens to your main source of income. It will keep you from incurring more debt.
Stop incurring debt. You have to make a conscious effort to correct your spending habits to keep yourself from adding to your existing debts. Until you are debt free, make a commitment to pay for things in cash. The rule is simple, if you cannot afford to pay for it in cash, do not buy it. Use your budget plan to help you determine the expenses that must be prioritized.
Reward yourself every now and then. Some people fail to complete their debt payment plan because they are too strict on themselves. While your need to get out of debt may be urgent, give yourself a break. Set up milestones to mark your progress. Every time you reach that milestone, give yourself a reward.
Being free from debt is a choice
What you have to realize is that to eliminate debt means you have to make some changes in your life. Being debt free means you have to choose to live that way. If you are half-hearted about it, that can endanger you to fall into the same debt pit. Keep yourself away from debt by eliminating the temptations that got you in debt in the first place. If that means closing your credit card accounts or staying away from friends who spend too much, then that is probably what you have to do. Until you can control yourself or make your friends respect your commitment to be debt free, then you need to choose the people you will hang out with from now on.
To eliminate debt is not easy but it is possible with the right mindset. Also, there are tools that you can use to help make your journey more organized. You can use the debt planner from Money.CNN.com or the debt elimination calculator from the TCalc.TimeValue.com. Feel free to search for more tools online to make your quest to eliminate debt be easier.