Need Assistance with Debt?
The get-it-now philosophy has lured many into the debt trap. Before you know where you are, you are drowning in debt and there is little cash available to cover the basic expenses. The good news is that it is possible to become debt-free. Freedom from debt will allow you to make all the choices of how to use your money.
Follow these five steps to become debt-free:
Step one – List your debts
To begin, make a list of every debt that you have. Include credit cards, car loans, home finance, and accounts that are in arrears. List the total amount owing, the repayment amount, and the interest rate applicable to each.
You may exclude a credit card if you pay it in full each month. Add each column to get the total debt, total monthly interest, and total monthly repayment. Think about what you could do with the money that you currently use for repayments!
Step two – List everything that you spend
Compile a list of all your monthly spending. Everything including debt and credit card repayments must be included. If you are uncertain about where you spend your money, use your credit card and bank statements. Carry a notepad with you for a month and write down every item that you buy.
This will form the basis for compiling a budget or spending plan detailed in step three. Don’t forget to include ad-hoc items such as home or car maintenance and expenses that happen only once a year. Divide annual expenses by 12 to get a monthly figure.
Calculate the total of everything that you spend.
Step three – Compile a spending plan
The purpose of this step is to find ways to reduce your monthly spending. This is necessary to create some surplus funds that can be targeted against debt. A spending plan or budget is the main tool required to control the money going out.
Compare your total spending against your income.
If you are spending more than your income, then begin looking at ways to reduce your household spending. Eliminate non-essential spending. Get the whole family to participate in identifying spending that adds little value to your life. What could you eliminate from your spending without impacting dramatically your lifestyle?
The aim of this step is to create a surplus that will be used to pay off your debts.
Step four – Target one debt at a time
Use the surplus created in step three to reduce your debts, one at a time. Begin with the debt that has the shortest remaining term. By using the extra funds available in the spending plan, you should be able to reduce the repayment term significantly.
Once the first debt has been paid off, add the repayment amount to your surplus to target the next debt. You should be able to reduce this debt’s term even faster. Repeat the process until all your debts have been eliminated.
Many recommend that you target the debt with the highest interest first. The reasons for targeting by the repayment term are psychological – it provides a feeling of satisfaction, and practical – each time you pay off an account, a large surplus becomes available to target the next debt.
Step 5 – Contact the professionals
It is not always easy to do it yourself. Professional debt services are available to assist you in becoming debt-free. They may be able to save you money on credit card interest or by negotiating favorable settlement terms.
The counselors will be able to provide professional advice on how to gain control over your debt. One of the core services offered is that of debt consolidation. All debts are consolidated into a single account leaving you with a single monthly payment.
Take that first step toward becoming debt-free. It could change your life!