Nobody really likes to be in debt. But debt is sometimes important because it allows people to buy things without having all the money upfront. You have to learn to manage your debt and not let it control you.
(You are in debt and know it. How you can avoid leading a life in debt by getting a grip on your finances)
You live in a nice house, have a good car, have all the mod cons which go inside the house, lead the good life. Family, friends, food, outings, vacations, branded clothes, eyewear, luggage, bags, shoes, the latest entertainment system, notebook, iphone – you have it all and then some. How much debt do you have? Do you even know, or do you have a ‘live life for the moment’ attitude which has got you into debt in the first place?
Here are eight steps to help you lead a debt free life, provided you are willing to take the plunge. Debt is an unnecessary burden on your not unlimited resources and you need to get out of the debt trap.
One: This is going to be the hardest job – sit down with all your bills and outstandings and figure out how much you owe. Sit down with all the documents pertaining to your income, investments and other assets and calculate how much you have.
Two: Bills have to be paid one way or the other. If you are already paying minimum amounts due on your credit cards, you really should not be putting more money on your cards. You need to pay the principal sum on your credit card bills as well. If you have cash, use your funds. If you can get rid of investments which are not generating as much interest as you are paying on your cards, you should get rid of some of your investments. Consider taking a low interest loan to pay your credit card bills – this can be a viable option a) if you are eligible for a loan and b) if the interest on your loan works out to less than the interest on your credit cards.
Three: Make a list of your spending habits and needs. For instance, groceries have to be bought, but you don’t really need that expensive coat or dress or gizmo. You need to buy gas for your car – make sure it is not a gas guzzler or trade it in for one that is not. Cut out unnecessary expenditure, whether it is that expensive bottle of wine or perfume or branded clothes or accessories.
Four: Try and spend cash where possible. If you have cash, don’t put your purchases on your card.
Five: If your expenditure is more than your income, you need to do a serious re-think. Either reduce your expenditure or increase your income. Better still, do both and you will soon be out of debt. Cut the flab from your monthly outgoings, buy cheaper products and before buying anything major ask yourself if you really need it or it is just a want. If you can get it, a part-time or week-end job will help in decreasing your financial burden. You can also find lots of freelance work via the internet, depending on your capabilities. For example you can generate income by selling on ebay.
Six: Always keep some money handy. In these days of recession, it is imperative that you can live for a couple of months even if you don’t have a job. If you have been given the pink slip and find it difficult to get a job like the one you were having, then lower your expectations and take what you can get.
Seven: Save. When you are working always save some money for a rainy day. Save a fixed percentage of your income every month – just pretend you get that much less and budget and spend accordingly. This money should ideally be put in an investment like a fixed deposit or a savings account which may yield low interest, but the safety of the capital is ensured.
Eight: Learn to live within your means. If you want to be debt free, this is the most crucial decision you can make.