Dreams seldom become reality! However, debt free living is such a dream that can come true if you take a few necessary steps. If you are buried under overwhelming debt burden, it might seem a distant dream to become debt free. However, it’s not at all impossible. If you know the reasons behind your debts, it becomes lot more easier to shed them off. So what is preventing you to be debt free? Know the reasons and become debt free using the following 21 methods:
1. Prepare a reasonable monthly budget: Experts often say that debt is chiefly the result of poor money management. Therefore, assess your total monthly income and prepare a reasonable monthly budget for your expenses.
2. Use a single credit card: This might sound unacceptable. However, if you want to stay debt free, use only one credit card, which has a low limit and further whose monthly payments don’t exceed 25% of your total income.
3. Avoid the "minimum payment" trap: If you are paying the minimum payments on your credit cards, you are just helping your credit card providers become wealthy. Therefore, if you want to eliminate your debts and become debt free, always try paying more than the minimum.
4. Put your debts in writing: Most people struggle with their debts, as they have absolutely no idea about their debt amounts. If you are serious about your debt and crave for a debt free life, put down all your debts in writing. You can also get an idea about your credit accounts by getting your credit reports from the three major credit bureaus (Equifax, Experian and TransUnion).
5. Build an emergency fund: You never know when crisis appear in you life. It may be a medical emergency or an accident. Stay prepared for such unfortunate incidents by building an emergency fund (EF) of at least $1000.
6. Never touch your EF: Make sure you never touch your emergency fund to make payments toward monthly credit card bills or mortgage payments. Forget the amount completely, and only use it when you’re in financial crisis.
7. Avoid borrowing blindly: Though banks are compressing their mortgage loan limits these days, yet it’s still possible to borrow a substantial amount. Never borrow the full mortgage loan from a bank. Contribute what you can as later you have to pay for maintenance, property taxes and home owners insurance besides monthly mortgage payments.
8. Consider balance transfer method: If you are having trouble making payments toward your credit card balances because of the high interest rates, consider a credit card balance transfer. These days, balance transfer cards work as a great medium to shed off your debts and be debt free.
9. Take out a consolidation loan: There is another way to consolidate your credit card balances. Get a low interest consolidation loan and pay off your existing credit card balances. However, know the interest rate and how much you’ll save before getting one. Here, you can make use of a debt calculator to know how much you’ll save in the process.
10. Spend less on entertainment: If you want to become debt free, you have to compromise something. Why spend unnecessarily on entertainment? Eat out less, cook dishes at home, cancel your cable & magazine subscription, and rent movies so that you can save some bucks in order to pay off your debts.
11. Enroll in a DMP: Another way to live a debt free life is being enrolled into a debt management plan with a professional credit counseling agency. In a debt management plan, a credit counselor fixes your budget so that you can make payments toward your debt.
12. Snowball the debt: This is a renowned debt free method. Just attack your smallest debt with extra payments and make minimum payments to others. Once you are done with it, attack the next smallest one.
13. Get help from debt settlement program: Debt settlement, debt arbitration, or credit card settlement is a unique debt relief approach where the creditor reduces the total debt amount in exchange for a lump sum payment. A successful debt settlement takes place when a creditor forgives a certain portion of the debt. However, only unsecured debts like credit card debt, medical bills, or utility bills can be settled by this approach.
14. Avalanche the debt: Debt avalanche is quite similar to debt snowball method. However, here you start your debt free journey by paying off the highest debt amount. Once you pay off the highest debt burden, start attacking the next highest one.
15. Try online budgeting tools: These days, there are a handful of budgeting tools available online. Online budgeting tools provided by some popular financial websites can help you manage your budget efficiently. These budgeting tools present all your financial data through easy graphs and charts for your convenience.
16. Change your attitude: Change your spending habits if you are deeply drowned in debt. If your spouse is determined to resolve your debt issues, you should also be determined. Again, avoid cherishing different interests than your spouse.
17. Stop borrowing more: Stop borrowing more from your present accounts while you are determined to resolve your debts and already started doing that with a debt management plan.
18. Make the most of your 401(k): Always try to make the most of your 401(k) retirement account. Again, make sure you increase your 401k contribution to 1%-2%, each time your salary is increased.
19. Bargain well: Make bargaining a habit! Once you visit a grocery or toys shop, bargain as good as you can before you buy. Also, try to avoid branded items. This way you can save huge amount each month.
20. Avoid medical debt: If you want to avoid incurring medical debt, opt for the govt. sponsored or public medical institutions. These types of medical institutions are owned by the government and offer free medical treatments to people.
21. Save at least 40%: Remember, once you successfully resolve your debts, make sure you save at least 40% and use the remaining 60% of your income for a debt free living.
You might be wondering whether or not it’s really possible to shed off your debts and live a debt free life using the mentioned tips. Well, don’t believe the words written in this article. Just experiment any one of the aforementioned tips and get your answer.