It’s no secret that lots of American consumers find themselves overwhelmed by debt. Yet remaining in that situation is not necessary. It is possible, through a bit of discipline and a few good strategies, to retire every penny of debt without having to declare bankruptcy.
The fact is, getting out of debt is not a matter of winning the lottery or getting a better job. It is a step-by-step process anyone can follow to a successful conclusion. There are five steps to the process as follows:
- Assessing your debt load
- Calculating interest payments
- Establishing a budget
- Establishing priorities
- Refusing new debt
Step 1 – Assess Your Debt Load
The first step in becoming debt-free is to realistically assess your current debt load. This assessment includes not only big-ticket items like your mortgage and auto loans, but also things like your monthly cell phone bill, digital TV, credit card payments, and so on. Without knowing your debt load there’s no way to come up with a suitable strategy to solve your financial problems.
Step 2 – Calculate Interest Payments
If you’ve never done so before, sit down and calculate how much money you will pay in interest over the lives of your various loans. Better yet, pull out your loan documents and just look at the raw numbers. When you realize how much you’re paying in interest you’ll likely be more diligent about getting your loans paid off as quickly as possible.
Step 3 – Establish a Budget
Financial experts agree that establishing a budget is the single most important thing you can do in this process. Without a budget to control where and how money is being spent it’s unrealistic for you to expect to be able to stay on track. Your budget should cover every penny that comes in and goes out. A budget also serves to show you areas where unnecessary spending can be reduced.
Step 4 – Establish Payment Priorities
With a budget in hand the next step is to establish your payment priorities. Concentrate on high interest credit cards and loans first. Why? Because it’s the interest rates that cause most of the problem. Retiring high interest debt first reduces the total amount of money you’ll end up paying.
Step 5 – Refuse New Debt
The last step in becoming debt-free is to simply refuse to take on new debt. Believe it or not, it is entirely possible to live within your means without using any form of credit whatsoever. Millions of people around the country do it every day. If you can learn to put money away in a savings account for major purchases, while also avoiding impulse purchases with credit cards, you’ll quickly discover how easy it is to live without indebtedness.
Getting out of debt can certainly be a long and tedious process. But by no means is it impossible. If you take the steps necessary you can be debt free and, with that freedom, enjoy life without constant financial pressures hanging over your head.