It’s easy to get into debt and difficult, and sometimes expensive, to get out of. Financial services companies suggest you borrow only enough than you can reasonably expect to repay. But sometimes unexpected expenses can make it more difficult to climb out of debt to get you back on track.
Some people stay in debt because they’re not sure what to do. As a result, many people have been carrying around thousands of dollars of credit card debt for years, paying hundreds of dollars in interest each year- because it never occurs to them to pay it off, put away the plastic and start using cash.
Whether your debt load is $1,000 or $100,000, you can bring it down to zero. Here are the steps to help make it happen:
- Pinpoint your position. Excluding mortgage, determine exactly how much you owe and how much discretionary income you have to begin whittling away at your debt load.
- Map out your debt-elimination game plan. Complete with a Zero Debt Day to celebrate your freedom from debt. Base your plan on three factors: time, discretionary dollars and total debt. Example: If you owe $6,000 and can allocate $300 a month exclusively to debt reduction, you can be debt free in approximately two years in many cases, depending on the amount of interest you owe.
- Stop adding new debt. Typically, we tend to pay off one bill, but pick up new debt in the process. Put away the credit cards and institute a cash-and-carry policy in your house.
- Don't be too easy on yourself. Be willing to do what it takes to get out of debt ASAP. Maybe you simply cannot afford to vacation in Colorado this summer and New York City this winter. Allocate that extra money to reduce debt. Consider this: If you budget $200 a month for debt reduction, when you're finally free and clear you'll have that much cash, every month, for lifestyle enhancement later.
- At the same time, avoid bread-and-water austerity. If you make yourself miserable, your plan will fail. Consider splitting discretionary cash in half — part for debt elimination; part for living (and playing) expenses.
- Bite the bullet together if you're married. Getting out of debt requires a sacrifice, one which will affect all members of your household. Enlist your partner's support or risk defeat.
- Gradually build up a cash cushion for emergencies and regular expenditures. This allows you to pay cash in the future, while actually earning interest rather than paying it.
- Use life insurance as a tool to make sure that funds are available to help pay your debts if you should die prematurely...and to help make sure that your family can avoid the need for future debt if something happens to you. This is especially apropos if you have a home mortgage or high amounts of consumer debt. Life insurance on your life can provide proceeds to repay your consumer debts, as well as pay off a mortgage, helping assure that your family can maintain their standard of living if anything should happen to you.
