Debt can be the cause of lots of anxiety and stress for individuals and families. If you are experiencing debt or realize that you have borrowed more against your home or credit cards than you would like, here are five tips on becoming debt free.
Step 1. Start with a Budget
The key to becoming debt free, believe it or not is to realize that you are in debt. In order to determine how deep in debt you are, you should first create a budget that compares the amount of expenses you have each month to the amount of revenue (income) you bring in. By quickly computing the difference between your total monthly expenses and your revenue, you can determine first off if you are in debt and secondly, how much debt your in. Understanding your debt can help you both in the short term and long term. The deeper in debt, the more belt tightening you will need to do and usually the longer it will take you to dig yourself out of the hole.
Step 2. Cut Down on Expenses
After completing a budget, if you realize you are in debt, one of the easiest ways to dig yourself out of it is by cutting back on expenses. We all have expenses whether it is rent, car loans, transportation costs, coffee and snacks, etc. For many people that are in debt several thousand dollars, you can start getting out of debt by simply cutting back on the things you buy. There are necessities such as rent that must get paid, but most people have plenty of discretionary spending that they can cut back easily. For instance, instead of going out to eat four times per week, you can go out only once, or instead of buying a large coffee from your favorite caf? each morning, you can choose to drink the free coffee available at work.
Step 3. Generate More Revenue
If you realize that your are deep in debt, besides cutting your expenses, you may need to generate more revenue. The easiest way to generate more revenue is by getting a part time job, or finding a new full time job that pays a better wage. Obviously, generating more revenue is much tougher and time consuming than cutting back on expenses, so if you are moderately in debt, the idea of getting a part time job will definitely motivate you to keep your expenses and discretionary spending down.
Step 4. Pay More than the Minimum Payment
Believe it or not, one of the easiest ways to keep your debt manageable is to pay more than just the minimum payment for your credit cards each month. When you only pay the minimum payment each month, you are basically just paying off the interest and never touching the principle. To reduce debt substantially pay at least double the minimum or three to four times the minimum payment if you can afford it.
Step 5. Consolidate Your Credit Cards
Finally, if you find yourself with loads of credit card debt, each with high interest rates and minimum payments, one strategy to reduce debt is to consolidate all your credit cards into one simple loan. With this strategy, you end up with a lower interest rate, a specific payment each month and only one loan to pay back.