No one wants to be in debt, but the unfortunate fact of the matter is that so many people are. However, debt need not be a permanent anchor holding you down. You can indeed escape it, though doing so likely won’t be easy. Debt is not the type of problem you can run away or hide from and hope that it resolves itself. Ignoring this type of problem just makes things worse. Instead, you must confront it head on, and if you want a lasting solution, you must make systematic changes to your spending habits and lifestyle. Still, you needn’t confront debt without guidance. So, follow these tips and guidelines and become debt-free as quickly and financially efficiently as possible.
Evaluate Your Spending
The first thing you must do is evaluate your spending. To do so, simply make a list of everything you buy in a given month and how much each item costs. At the end of the month, go over this list and classify each expenditure as a necessity or a luxury. Try to be as critical as possible in doing so because while, it is very difficult to give up frills to which you have become accustomed, you need to decide whether keeping them is worth living with the burden of debt. Believe it or not, cable TV, vacations and cell phone plans are not necessities. Neither is eating out; going to movies, concerts and sporting events; or even owning a car. True necessities are food, clothing, shelter and healthcare. Until you get back to the black, most everything else should go by the wayside.Once you have determined which of your expenses are necessary and which are expendable, you should establish a monthly budget to adhere to until you erase your debt. It’s very important that you write this budget down because doing so will make it seem more real and will make it more difficult to make empty promises about saving to yourself. Once your budget is on paper or saved in your computer, simply focus on meeting it every month, and before you know it, that financial weight holding you down will be no more. If you want to know exactly how long this will take, just plug your monthly payment and interest rate into a debt payoff calculator and voila, you’ve got yourself a debt finish line.
Use the Right Spending Vehicle
One way to make sure you adhere to your budget is to use either a debit card or a prepaid card for your everyday expenses (prepaid cards are for those who cannot qualify for a checking account). Just load however much money your budget indicates you need each month and use either type of card as your main spending vehicle. The good thing about either is that you cannot incur more debt, as would be the case with a credit card. In addition, if you ever have to load more money on your card before the end of the month, it will be an obvious warning that you aren’t sticking to your budget. If this does ever occur, you must make an adjustment to prevent it from becoming a trend. Not doing so would seriously hamper your debt-cutting efforts, costing you both time and money.Strategic Payment
On the other hand, approaching your debt payments strategically will minimize both the cost and time of paying down what you owe. If you have multiple types of debt, pay the minimum on each and attribute whatever remains to the balance with the highest interest rate. Once this debt is paid down, move onto the balance with the next highest interest rate. Continuing this process until you’re debt free will surely help you save on interest. Old Debt
If you have defaulted on any debt obligation, the statute of limitations for debt must be at the forefront of any decision you make. The statute of limitations is the time frame during which you can be sued for what you owe (ranges from 3-15 years, depending on your state). Since it resets each time you make a payment, the way you approach debt on which you have defaulted affects the likelihood that you’ll get sued. Your best course of action is to strike an agreement with your creditor where you satisfy your financial obligation through either a lump-sum payment or an affordable monthly payment plan. Doing so will not only eliminate the possibility of a lawsuit but, if you negotiate right, will also lead your creditor to make some concessions in terms of what you owe. However, until you are able to reach an agreement that both fully satisfies your obligation to the creditor and that you can afford, it’s worthless to make a payment because doing so will only prolong your vulnerability to a lawsuit.Be careful not to confuse the statute of limitations for debt with the length of time negative information remains on your credit reports. Most negative information remains on your reports for seven years beginning 180 days after you first become delinquent, no matter what. Finally, when considering your options, be aware of the fact that federal student loans do not have statutes of limitations, and you can therefore be sued if you don’t pay them back, no matter how long it has been since you first became delinquent.
Final Thoughts
Once you escape the red, your work is not over. You freed yourself from debt, yes, but your objective will now be to keep yourself out of debt. While you can relax your spending slightly and attribute more money to fun, you don’t want to go overboard. Continue to keep a budget and split up the money previously committed to debt payments between leisure and savings. Build up a nest egg to fall back on in case something happens. Having this safety net will put your mind at ease and give you a little margin for error. Remember though, while you can’t just skip ahead to this step, it will be here before you know it if you just make that first move toward dealing with your outstanding payments.---
go ahead share your thoughts with me now, my ears are open. I'm always eager to hear what you think.
follow me on Twitter and facebook
No comments:
Post a Comment