There are five steps that need to be taken before you can become debt free. First get organized, assess your situation, search for ways to cut costs, implement your plan, and stick to it. Anyone can become debt free if they are committed to sticking to their plan.
First getting yourself organized means getting all your debts and assets together. You may need to pull a credit report in order to find all your debts if you are very unorganized or have moved several times. You will also want to review your credit report and make sure the information is accurate. An inaccurate report can cost you heavily in interest rates and auto insurance rates.
Once you have found all your paperwork and have it laid out in front of you, it’s time to get organized. List all your debts in one column and all your income in another column. Calculate how much is needed each month for you to live on. If you have more debt than income and are continually adding to that debt, you need to look at places to cut costs.
If you feel you are in over your head, then you may want to schedule an appointment to see a credit counselor or a settlement specialist. These places can help you with making adjustments of your debts. You can do this without their help if you know what you are doing.
You can begin changing your lifestyle and spending less. You’ll first want to call your insurance providers such as auto, home and life insurance. Be sure you have the policies that are best for your situation. Watch for extra costs such as towing as it’s generally not essential. Check your grocery list and clip coupons. You can save hundreds of dollars per month by coupon shopping and sticking to a grocery list.
Monitor your spending habits. If you are spending too much on clothing or some hobby, set a budget and stick to that budget. Medical debts can be kept to a minimum too. Whether you have medical insurance or not, you’ll want to ask your doctor why he is doing a procedure or test and find out if it’s really necessary before it’s done. Don’t run to the emergency room for cuts, fevers, and minor problems. Generally a walk in clinic or your doctor can handle the situation for a fraction of the cost.
You can save on your mortgage sometimes by refinancing. If you are paying a high interest rate, shop around and you may find a lower one. If you change a 30-year mortgage to a 15-year mortgage, it can save you thousands of dollars in interest and get you debt free much quicker.
Stop using your credit cards. If you feel you must have one card, keep track of expenditures in your checkbook. You can have two checkbooks, one with your actual balance so you can balance your statement and the other to be sure you aren’t spending more money than you have. Each time you make a purchase on your credit card, write it in your second checkbook in red showing that money is gone. If your second checkbook balance gets low, you’ll know you need to cut back some more or find other ways to make money.
If you are able to borrow on your 401k and pay yourself interest, you can consolidate your credit cards. If you don’t have a 401k, you may have some other source you can borrow from. Then you could negotiate settlements with your credit card companies if you are paying them off in lump sum amounts. If you don’t know how to negotiate, you could hire a professional.
It’s possible you’ll need to take on a second job or that another member of the household will need to work to help with the bills. You may also need to sell some things around the house to pay off some debts. You can sell on ebay and other online sites or just have a rummage sale, but advertise it as a “getting out of debt sale.”
Remember that once you are on the road to being debt free, you’ll need to stick to the plan. When you do become debt free, work on establishing savings so you don’t fall back into old habits. A savings will also provide you with the safety net you’ll need if an emergency should ever arise. You’ll want to keep enough money in a savings account in case you should lose your job or become ill. Sticking to a budget and living within your means will keep you debt free and worry free.