The way to eliminate debt and become financially independent is to stay motivated. Plan out a way which suits your budget to continuously pay off your bills so it becomes a norm. Always keep a good momentum as to why you want to be debt free. I want to go overseas? I want to buy my own home?
Debt management plans are designed to manage your debts better. To be effective at paying off your debt, you will need discipline and sound decision-making processes. The first step towards effective debt management is a freeze on all unnecessary spending. There are several ways to work towards this, including putting your credit cards on freeze, removing your credit card details from online shopping sites, and decrease expenditure. If you find yourself unable to differentiate between needs and wants, delay the purchase. Additionally, it is advisable to pay more than the minimum monthly balance on your outstanding debt. Living within your means, or below your means is advisable, since this encourages saving and helps to eliminate unnecessary expenditure.
On the debt continuum, there are certain debts that need to be paid first. These are the high interest debts such as credit card debt with high APRs, or bad credit loan debt with high interest rates. Once you’ve taken care of the most expensive debt, you can work towards reducing other debts. There is good debt and there is bad debt. Good debt includes things like student loans which are designed to further your education to enhance your job prospects. Other forms of good debt include home mortgages which effectively cap your rent repayments, and safeguard your investment over time. Of course, you want to ensure that you always have enough to repay your good debt so that you don’t lose the investment.
Believe it or not, bankruptcy filings require the services of legal experts. This makes them inherently more expensive, puzzling, and endless than other debt management solutions. A bankruptcy filing needs to be approved by the courts, and it does not absolve you of any responsibilities related to things like unpaid federal taxes or state taxes, child payments, student loans, alimony, etc. If you are in the process of declaring bankruptcy, you don’t have carte blanche to spend money willy-nilly. Besides, bankruptcy filings are expensive, since you will have to pay legal fees and you may have to pay court fees as well. Bankruptcy filings also require clients to take bankruptcy classes to understand the implications of their actions. This is done as part of an ongoing learning process to help you better manage your finances and debt.
According to statistics, American spent $1.33 for every $1 that they earn. This means that everybody is indebted by 33% at the bare minimum. Living on credit means that you’re always paying interest on the principal. According to statistics, typical US middle income households have $7100 worth of credit card debt per month. The biggest culprit in rising household debt is college debt. It is worth understanding why people spend more than they have. Behavioural psychologists believe that many folks spend more as a way to make themselves feel better. Retail therapy may be brought upon by low self-esteem, boredom, or stress factors. However, frugality allows for a much more satisfying lifestyle without the attendant stresses of high debt levels.
The best way to stay in control of your debts is to spend less than you earn, save a small percentage of your pay which you know you can manage. Look into investing your savings to build wealth towards your retirement.
