Are you one of the many people who think they will never get out of debt? If so, you are not alone in feeling this way. It is too common in today’s society to live in a state of debt, but that does not have to be the case. With some planning and understanding, almost anyone can become close to debt free. I am sure you have seen the articles on-line about how people paid off almost six figures worth of debt in a short amount of time. I know I have read them trying to understand better how people that do not have extremely high paying jobs achieve this feat. If you read this post and apply some of these techniques, I am sure you may be able to join these special people and get out of debt yourself.
First you need to be aware of how much you actually owe in all of your debts. Most people surveyed were not aware of the extent of their debt and did not know how much they owed. Before you can be debt free, you must first know how much it is you are expected to pay your creditors. As I have said in previous posts, you need to have a budget and in order to have an accurate budget, you need to know how much you owe. After you have a total for your debts and a budget in hand you can create a plan to start to get out of debt.
If you are only paying the minimum payment on your debts, you could pay thousand extra in interest and add years to your debts. By paying the required minimum, you are assuring you will indeed stay in debt longer than is necessary. By paying even an extra $5 or $10 over the minimum payment, you will be reducing your outstanding principal faster and reducing the amount you will pay in interest. Use your budget to see where you can cut expenses to make additional payments on your debts. Start with the lowest balance if you need to have a sense of achievement. If not, start with the debt with the highest interest rate. Either way will work, and you need to outline this in your debt plan.
Many people have mortgages that are simply too big for their standard of living. If this is you, consider downsizing your living arrangements or consider renting instead of buying. You can also consider paying extra here as well instead of the minimum payment and reduce the length of your mortgage in some instances by years saving you thousands in interest payments. If you can afford it, try switching from a 30-year mortgage to a 15-year mortgage with lower interest rates. But if possible, always try to pay some extra principal each and every month.
Here the damage may already be done, and that is taking on too much in student loan debt. If possible, avoid it if you can by taking fewer hours and working while you are in school. Look for scholarships and grants that you will not have to repay to apply towards your tuition. And for parents do not take on the debt in place of your children no matter what. If you do chances are you will be affecting your retirement or your standard of living. If student loans are unavoidable, it is better for your children to have a small amount of this debt than you. But there are always alternatives to taking out huge amounts of student loan debt to get through college.
Another thing that parents have to be aware of is buying their children everything that they want. It is important not to give your children a sense of entitlement just as it is important for you to maintain your standard of living within your means. Just because someone else has the latest and greatest does not mean you or your kids need it as well unless you can pay cash for it while not detracting from your budget and debt plan.
Almost 38% of the families I read from a survey do not have any emergency fund. This is vital, and a real necessity as emergencies will always occur. It is vital you establish your initial emergency fund to help you avoid taking on additional debts when these occur. I recommend about six month’s worth of expenses for your final emergency fund. But start with $1,000 no matter what. Then in your budget make sure you are setting something aside each paycheck that will go into a savings account that is designated for your emergency fund.
If you do not pay cash for your next car, do not go for a loan longer than 60 months. There are a few reasons for this, but one of the main is a car loses its value very fast and by the time the loan is over you probably will owe more on the loan than the car is worth. And most cars are traded in around the sixth year anyway so anything longer than a five year loan is risky as you may end up upside down on the loan by the time you need a new car. And finally the interest rate on a loan longer than 60 months normally doubles meaning you really will be paying a lot more for that car with the longer terms.
Late fees and high-interest rates will almost always keep you in debt as well. Most late fees are avoidable if you use a budget, do not live outside your means and keep on top of your finances. By avoiding late fees, yo will avoid throwing unnecessary money to your creditors in the first place. And if you have too many late fees most creditors will raise your interest rate due to your now lower credit score. Pay your bills on time and live within your means and you will not have any issues getting the best interest rates available from your creditors.
If you try to apply a fix to these areas of debt chances are you too can become one of the success stories everyone wants to be on getting out of debt. If you need some additional help with this and would like to know when I release books and gain access to special articles sign up for my email newsletter. As a thank you for signing up you will gain access to two valuable spreadsheets that can assist you in getting out of debt. One is for helping you create a budget, and the other will assist you in getting on top of your debts and how to best pay them off.
As always, if you have any questions or need any additional information, please contact me directly.
