When planning a debt free life it is important you understand the types of personal debts you owe and see things in a right perspective.
Any debt that is a result of borrowing money for any purchase that has future value built in, for example: a home purchase, investment or a student loan for college education. These types of debts are known to be “good” because they can help you build wealth and success.
A mortgage loan is the most popular personal good debt! You take a loan, which will financially help you build or buy a home. It is considered as an investment because the home will eventually be yours only!
Debt that can be turned over to debt collection agencies such as credit card debt, personal loans and other unsecured debts are known to be bad debts. These debts often carry high interest rates as well.
In essence anything you purchase with credit or can be financed, that is unsecured (doesn’t require collateral) and devalues with time, is bad debt. Even food and clothes, that are essential, which were purchased with a credit card, are bad debts. Put your effort in keeping bad debts to a minimum while paying the full balance of these debts on time.
Tackle them both.
Keeping good debt apart from bad debt is a wise decision. Don’t make the mistake of consolidating unsecured debt with a mortgage loan, which is secured, by taking a bigger loan and using the difference to pay of bad debt. Not in all cases it is profitable and it can put your asset in risk.
When managing your monthly payments, paying off higher interest rate debt first is highly recommended by most financial experts. By doing so you are reducing the bad debt faster giving you more financial freedom in the future to pay off more debt, in larger sums.
Recommended Reading: Good debt, bad debt at WiseBread.com
Last week my wife came home from shopping for groceries, we shop once a month for the whole month. While helping out with unpacking the groceries I find myself stacking in the closet 16 tuna cans. I asked her for the reason she bought this unusual amount of tuna cans (which I think you can feed 12 marine solders with – on a mission to save earth) she says: “Honey we eat tuna and they were on sale!” She was right in a way and had good intentions, she wanted to save us money, but did she? It actually made me think! I wouldn’t usually pay attention to such a thing, but, it happened to hit me.
Why buy 16 tuna cans when we eat about 8 a month?
Sometimes we are introduced to these “amazing” sales and we’re sucked in to buying more than we really need at the moment.
How often do you come across?
“Buy 2 Get 1 Free” or “Buy 3 Get 2 Free” and the most famous – “Buy 6 and Win a Chance for a Brand New Mercedes!” These “sales” aren’t always profitable. Often during the sale one tuna can costs more than it normally does. Those are the times where you should be a smart buyer instead of an impulsive one. Purchase, if possible with discount coupons, only what you need for that same month or week or how ever often you go shopping for and what you save you can use to pay off more debt.
This taught my wife and I something very important when it comes to buying only what we really need for that month. Oh, and just to let you know we were so close to winning the Mercedes.
This article is intended to help anyone who has a debt problem and really wants to improve his/her credit rating or financial status. If you don’t think you are strong enough then reading on is a waste of your time right???
1. Identify your debt problem
It’s important you find the main problem that created your credit card debt. Try to cut that specific payment by at least 20%. If you don’t, your credit card debt will only worsen and in the future eliminating your credit card debt will be harder to achieve.
2. Create a Budget and Goal
Remember that the first thing that got you in debt was incorrect money management. You have to set a budget for yourself and work with it. Write down your personal goal, how much you’re allowed to spend monthly and in what period of time you will reach your goal. The most important thing with this strategy is reading it twice a day to yourself and sticking to your plan.
3. Contact a debt management organization
A lot of debt management services will give you free advice and may even help you manage your payments. You can find some non profitable organizations on our debt management service page.
4. Control your spending habits
This is not easy however, very efficient. Don’t use your credit card so often. Try to use cash and reduce your expenses. Don’t eat at expensive restaurants, use coupons to purchase food and in general buy only what you really need. This way of life doesn’t have to last forever I believe that in 2 months time you will see a big difference.
5. Apply for a debt consolidation loan
If you are in a large amount of debt consider consolidating your debt. A good way to start is by getting a personal loan. If you have an asset such like a home get a secured loan like a Guaranteed lowest cost Home Equity Loan.
. Using this strategy you can consolidate your debt immediately and then just pay of the loan in time.
6. Get a Lower APR credit card
Lower APR cards allow you to transfer multiple card balances into one and eliminate the numerous monthly repayments you have been facing. Again, this is not free extra money. Compare all the transfer options available and understand all the terms and conditions. Failing everything, speak to your creditors and negotiate lower interest rates and payments.
7. Pay More Than The Minimum Payment
Creditors make their fortune thanks to the interest you pay. Therefore, the best solution is to pay more than the minimum payment this will reduce your credit card debt and you will also be paying less in the long run since your interest payments will be lower. If you have trouble paying more than the minimum monthly payment, find a second job.
At the end of the day the most important thing to remember is changing your way of life and spending habits. Following these easy steps will guarantee you a debt free status within 2 – 6 months depending on the amount of debt you are in. It maybe not the easiest thing to do but, think of the results at the end and the way you will feel.