How to Become Debt-Free

If you are like millions of Americans, you probably have debt. Being debt-free may seem like a dream to you but it is possible. You can get your head above financial waters. All you have to do is set up a budget for your personal finances, a goal and stick to it.

Steps in Becoming Debt-Free

The first thing you need to do is accumulate the amount of debt you have. You want to include your car loans, mortgage, credit card balances, and personal loans - becoming debt-free means not owing ANYONE money.

The next thing is to calculate the minimum amount you have to pay to each debtor. This means how much you have to pay on your car, home, and minimum payments on credit cards and personal loans. Take this total amount and subtract it from your income.

This third step is the important one and will make the biggest impact on paying off your debt. Figure out how much money left over that you can put towards your debt. Let’s say you have $500 a month that you have been spending because it wasn’t allocated to anything (since you already paid the minimum on everything). Instead of wasting it on things you don’t need, commit to putting it towards your debt. You can spread it around such as $100 to each debt or you can place the $500 to one particular debt. The advantage of the second one is that you will see your balance on that debt decline much more quickly, which may give you that extra motivation that you need.

The last step is to create a calendar for paying off your debt. Take your total debt and subtract the amount you can pay towards it each month. Each month circle your new, lower debt amount. See how long it will take you to pay off your debt… Strive for that month! Make adjustments as needed (pay a little more one month and feel good that you will reach your goal earlier!). Before you know it, you will be debt-free!

(Photo Credit: http://www.flickr.com/photos/eric731/2667912706/)

July 27th, 2009 by Marcelina Hardy | Posted in Debt Management | (0)