|
|
Eliminate Debt and Live Debt FreeLiving on a budget? Then the next step is to eliminate debt from your financial life. You may work 40 or 60 hours a week, but no matter how hard you work, your debt is working against you even harder. It works 24-7, building itself up every day with more interest. Getting rid of the debt in your life gives you freedom to do what you want with your money. Remember the emergency fund you built up as part of your budget plan? If you eliminate debt, all of it, including your mortgage, that emergency fund jumps from one which will meet your needs for six months to one which meets your needs for a year or more. Just for fun, sit down and add up how much you pay each month on credit card bills, car payments, student loans, and your home mortgage. Subtract these from your total income. That amount is actually what you are living on. The money you are spending to pay off debt is unavailable for you to use for any other purpose. Compare your income before you subtracted the debt payments to what it is after you subtract the debt payments. Wouldn't you rather live on your entire income, not just what is left over after you pay your debts? It is possible to eliminate debt, but it isn't easy. It takes dedication and determination. It is hard, but you can do hard things. Remember, this is a hard thing that you are doing for yourself and your family. Throw off the dead weight of debt. Pay it off and once it is gone, keep it out of your life. There are two opinions on how to pay off debt, but they both start the same. Make a list of all your debts and how much you owe for each one. Next write down your minimum monthly payment for each one. Then for each debt write down the interest rate you are paying as in the example below. Visa-Owe: $1358.00, Minimum payment $50.00, Interest rate 12.9% Store Card-Owe: $359.00, Minimum payment $25.00, Interest rate 21.9% Car-Owe: $12,450.00, Minimum payment $350.00, Interest rate 6.9% Now is the point you choose which way you want to pay things off. Some people say pay off the smallest balance first. Others say to pay off the one which charges the highest interest rate first. I like the idea of listing the bills in order of the amount owed and then paying off the smallest one, then the next larger one and so on. That way you get an almost instant reward as you see those smaller bills eliminated one by one. But in order to gain the momentum you need to become debt free, you need to create a snowball effect. Just as a snowball rolling down hill gathers more and more snow as it rolls down, you want to eliminate debt with bigger and bigger payments. As soon as you pay off the first debt, add the amount you have been paying on it to the amount you are paying on the second bill on your list. If I paid off the $350 owed on the store bill in the example above, then the month after that I would add the $25.00 I had been paying on that to the Visa bill, jumping up my Visa payments to $75.00 each month. Then when that bill was paid off I would take the $75.00 and add it to the car payment, raising that to $425.00 each month. As you continue with this process, make sure you do not buy other things with credit. You now have an emergency fund so use that instead of the credit card when you have an emergency. Also examine your budget carefully. Are there items you can stop buying so you have more money to use to eliminate debt? Once you start you will be surprised at the number of ways you can find to save so that you can pay off your debts faster. What about your tax return? Instead of spending it, use it to pay off debt. Did you get a raise at the beginning of the year? You are used to living without that money. Add it to your debt payments. Take time once in a while and see where you are going. Keep your goal of a debt-free life in front of you. Getting rid of debt is a step-by-step process, but it is one that is possible. And the day you finally make that last payment on your student loan, or the final payment on your mortgage is the day you become truly free. |
