The Road to a Debt Free Future
By Sadiya Anjum
Some people may be on the verge of bankruptcy, some blissfully unaware that they are getting there and some just ignorant of the piling debts. Whichever the case, the truth is that a debt free life today seems almost unimaginable. Managing your finances and working towards a debt free life can be a very rewarding experience. It takes some patience and hard work to get there but it is important that you start now and not wait for another opportune moment to do the same. Here are some simple ways to head towards debt free days:
Analyze your budget
To begin with, it is essential that you get your entire finances in order and allocate funds for each aspect of financial living. Your total income should ideally be distributed as follows: 35% for housing, 15% for debt reduction, 20% for transportation, 10% for savings and 20% for other expenses. Once you make this calculation and determine what you are actually doing, you will discover discrepancies in the allocation of your finances. Try and distribute your income to achieve balance in your financial situation.
Discover total debt
Take out all your bills, documents representing loans, debts etc. and put them all together. Calculate the total debt you owe and how much you are required to pay monthly to eliminate these debts. Getting a clear picture of exactly how much you owe will help you towards the next step of actual debt reduction.
Pay off debt
There are several strategies one may employ but the safest one recommended would be to start paying off the balance with the highest interest rate. At the same time, you should try and make a little above the minimum payment required on all other debts. But focus on one debt at a time; be consistent with your payments and make them on time to avoid damaging your credit score. An important point to remember is to avoid using your home equity to reduce debt on credit cards (unless your debt is too severe or you are on the brink of bankruptcy). Eventually, you will land up piling more credit and you may have just reduced the equity on your home unnecessarily.
Change spending habits
Calculating debt and making payments is nothing when compared to the changes you are required to make in your spending habits. Some times it may be a simple matter of cutting down on impulse shopping or it may require drastic lifestyle changes with regard to splurging. To change overnight is not easy and such changes usually result in the proverbial falling off the wagon affair.
So analyze carefully where your money is actually going and how you are spending each cent. A close scrutiny will reveal a pattern of spending behavior and you will then be able to judge where exactly changes are needed. Make small and realistic changes which require small sacrifices and you can actually live with every single day. Avoid using credit cards and always use cash. If you find the need for plastic money, use a debit card instead of a credit card.
Ban new debts
While you are diligently working on reducing debt, it is important to stay clear of new debts. When you get credit card offers by mail, do not respond or even consider them for a second. There is no point in incurring new debt when you are actually trying to pay off your existing debt. This is of course simple to understand but difficult to practice. But living within your means and avoiding new debt is the quickest road to a debt free day.
Make simple changes in your life and always keep track of the money which comes in and goes out. Analyze your financial situation and spending habits honestly. Depending on the picture you see, develop a simple plan for yourself and stick to it. This will lead you to a financially secure and satisfying future.
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