Get Debt Free

Get Debt Free
It goes without saying; your debts will pull you down faster than anything else.

Debts reduce your net worth (which is your wealth) because of the cost of the debt, but if it is bad debt then the situation is even worse. Bad debt is incurred on things that do not increase in value, whereas good debt is incurred on things that increase in value.

Debt can be used wisely, but only for assets that appreciate or grow in value, and hopefully also generate revenue income. If debt is not controlled it can easily get out of hand. It will result in financial bondage rather than financial freedom. The best advice is; don’t get into debt at all. Money used to pay off debt cannot be invested, but put into other options that will enable it to grow.

Debt money is lost money because it is gone.

If you must go into debt, make sure that what you purchase will grow in value or produce income, or preferably have a combination of the two. Simply going into debt for luxuries such as new clothing, jewellery, electronic equipment, or a new cell phone, etc is money not working for you and therefore will not be producing wealth.

Why People Get into Debt
Each year thousands of people file for bankruptcy. Statistics show that bankruptcies are increasing significantly year by year. This is because many people are getting into debt because credit is so easy to obtain today. They get into debt because they don’t know how money should be managed and they know little about the financial and credit side of things.

Many experience financial hardships caused by loss of employment, or marriage break-up, or medical bills. Some get into debt because they haven’t learnt to say no, and because it is easy to buy things on the credit card. Others get into debt because they don’t think about tomorrow and choose to live and enjoy today and face the consequences later.

There are many reasons why people get into trouble when they get into debt. This is covered in other areas on this information site. To grow your wealth - spend less than you earn. Also, use your savings or excess money in such a way that it will grow.

People get into bondage with debt just like they get into bondage with drugs, drink or gambling. It is a matter of saying “enough is enough” and taking control of the situation. It may need drastic action, such as cutting up your credit cards and paying cash for everything.

Wealth Building by Cutting Debts
Here are the points you need to know:

  • Develop a budget and stick to it.
  • Save money so that you are ready for any unexpected events. This is your reserve.
  • Pay off all your credit card balances as soon as possible.
  • If you have to finance a purchase, look at the option of buying a less expensive model and not having any finance.
  • If you have to borrow, learn everything about credit, interest rates, fees, late penalties, etc.
  • If you need to consolidate all your debts under one lower interest loan, which may be tied into your home mortgage.

Do You Want to Reduce Your Credit Card Debt?

Here are some suggestions:

  • Pay cash if you can.
  • Set yourself a monthly limit that you don’t go over.
  • Cut the number of credit cards you have. Cut all of them up, except or 1 or 2. Use these only for emergencies.
  • Choose card that have the lowest interest rates, or low annual fees. Be aware of the interest free provisions that cards can give you.
  • Don’t apply for credit cards just to get the rewards.
  • Be aware that cash advances will be charged to you from the date the money is drawn.
  • If you can, pay your credit card off on time to avoid any late charges.

Plan to Get Out of Debt - Fast
To get out of debt and to achieve financial security you will need to put together a debt avoidance plan.
Your plan will set out that you would need to have funds for retirement and must have paid off your home so your mortgages are gone, you are totally debt-free and you have a clean credit history in case you ever need to get credit in the future.

Here are some of the things that you will need to follow in order to avoid all debt and be in the position as per your plan:

  1. Set up a budget - Establish a budget to help you sort out your finances. This budget will set out the income that is coming in and the expenses that you need to live by, as well as identifying those costs which are necessary as well as those which are not necessary. You have to set goals based on your expenses and your disposable income and then you must stick to them.

  2. Pay high interest first - Try to pay off all your highest interest debts as fast as possible. You will need to find out where the high interest rates are and then make a short list of debts, which you will pay off sooner than others because of the charges. If you have any extra money that comes to you by way of a tax refund or sale of some assets etc., then clear the high interest debt quickly.

  3. Credit Cards - As soon as you can get rid of your credit cards. They will cause you more headaches than anything. If you have more than one and are unable to consolidate all your cards, pay off the hefty interest ones first and then, once that's done, get rid of all your unnecessary cards. Commit yourself not to put anything on your cards again until they are clear. If you have only one card, then cut up all except one that you would use

  4. Consolidate - Consolidate all your bills so that you are only paying one amount each month or week, this may make it easier for you to manage your situation. Maybe you can consolidate your mortgage and your credit card debts and car finance and other charges under the one loan, which often can be at a lower interest rate. Consolidation is a sensible option if planned soundly.

Finally, the general rule is that you should limit your short-term debt, like credit cards and charge accounts, to no more than 10% of your total income. Once you have eliminated debt, then you must look toward saving for the future.

Attack Your Debts Immediately
Here are some suggestions:

  • Tear up your credit cards. Literally take a pair of scissors and cut them up. The next best option is to get rid of all your cards except one and don’t use that card, except for emergencies.

  • Pay off your highest interest rate cards or debts first. This should save you a lot of money because it is the interest burden that keeps the debts at a high level.

  • If you cannot pay your bills contact your creditors and come to an arrangement. Be honest with them and explain your financial situation. They will respect that and will most likely agree to a plan to pay off your debts over a period. Once you have set a plan in place, keep to it.

  • If you must carry a credit card, apply for a low interest credit card and transfer the balances from your high interest cards.

  • If you own a home you might consider consolidating all your loans into one. This will be cheaper for you in the long run. You should be able to receive a lower interest rate loan on your home, which can be used to clear all your high interest debts. Once you have this in place – stick to this religiously because the sooner you are able to clear that loan which is on your home – the better.

  • If you need help, talk to a financial adviser or a credit councillor. It is no use struggling along trying to be free of debt and trying to be financially free if you are finding it tough going. You may need some encouragement, you may need some advice, and you may simply need someone to talk to.