Debt is an, unfortunately, the fact of life for many people. It can often be a consequence of living beyond your means, but with what you feel is affordable debt. It is also often seen as essential in order to keep up with the neighbors or your friends. However, when something changes suddenly in your life, such as a job loss, you are left in a predicament from which there seems no easy escape route.
Living debt free is a wonderful feeling and will allow you more security and flexibility in life than you can even dream. It is not an easy road, but it is possible. Every person and family are different, but the following tips should help:
The Credit Card
As long as you have a credit card you will be tempted to use it. People may say they need it for an emergency, but you will be surprised at how many ways there are around any issue without having to borrow money. No matter what the debt on your card you can cancel the card. This removes the temptation to spend and is essential as credit cards generally carry high-interest rates. The same treatment should be applied to any store cards you own.
The most obvious next step is to create a budget. You will need to list all your incomings and all your outgoings. Go through your bank statements and receipts if necessary to compile a complete list. You will then be able to remove all non-essential items. Cable TV might seem an essential item but it can be expensive, and you can live without it. You do not need to eat out every week or order in, or even purchase new clothes; unless yours have worn out. Once you have eliminated all your non-essential expenses, you can decide on what income you have left after paying your essential bills.
From this, you need to decide how frugally you can live. Set a spending limit for the essential weekly items, shopping, fuel and even social occasions. The money you have left is what you can use to reduce your debt. The more you can spare the quicker you will get rid of your debts. You may find it useful to itemize exactly when payments need to be made, to ensure you pay them on time and the funds are there.
The ATM card is dangerous! It is very easy to use it in several shops and a restaurant and spend hundreds of dollars without really realizing what you have spent. All your bills should be paid online directly from your account. You can then draw out your allotted weekly or monthly allowance. The best way to manage the cash in your hand is to place it in a different envelope for each purpose; i.e. one envelope for shopping, one for fuel, etc.
Paying your way out of debt is an excellent goal. However, when you are on a very limited income, it is advisable to put a little of the spare money aside somewhere for emergencies. You may even prefer to save this fund first before you start overpaying your debt repayments.
For this, you must take the approach which suits you the best. It may make the most sense financially to tackle the biggest debt first or the one with the highest interest rate. However, this may mean you struggle to remain motivated. You may prefer to tackle the smallest first so that you have a sense of achievement which inspires you to move onto the next one. It is also worth giving yourself a small reward for every goal reached; this will help you remain motivated.
Living frugally is an important part of becoming debt free and gaining an appreciation for money. However, a crucial part is looking at ways you can increase your income, this could be a different job, a second income, using a risk management software tool, or even starting a blog with affiliate marketing potential. Earning more will allow you to clear your debts quicker and put you in a better position when you are debt free!
Guest Post by Peter Smith