How to Transfer Debt to Wealth
Americans live in a society based upon spending and debt. It is time to transfer that mentality from one of spending to one of saving. If you and your family have gotten into a trap of debt, here is a step-by-step plan to shift that debt to wealth. Through proper planning and budgeting, along with frugal living, you too can succeed in beating debt as soon as possible.
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Instructions
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1
Create a family budget. Include every dollar spent per month. Create categories such as food, dining, entertainment, rent, car payment, etc. until all expenditures are categorized.
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2
Analyze your spending. Is there any where that you can reduce your outflow? Can you reduce or change service providers such as Internet, cable and cell phone plans? Can you reduce spending in any other areas such as dining out and entertainment?
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3
Earn extra funds to pay down spending. Take on extra shifts at work or get a second job. Reduce clutter in your home by having a garage sale. Offer to do household chores for neighbors for extra cash.
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4
Take all the extra funds earned per month through extra work and reduction of expenses and create a three- to six-month reserve fund.
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5
Once the reserve fund is complete, make a list of all debts from smallest monthly payment to largest. Begin to pay as much extra per month on the smallest monthly debt as possible. Once that debt is paid in full, take all the extra funds and apply it to your next smallest debt until that debt is paid in full. "Snowball" your payments until all debts are paid in full.
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6
Once the debts are paid in full, spend the extra funds that were used on debt by investing in stocks, certificates of deposit or mutual funds. Continue to live frugally, as if the debts were in still in place and save all extra funds to build long-term wealth.
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Tips & Warnings
Step 4 is critical to your success. You will have unexpected expenses (such as an illness or car repair) and if you have to tap back into debt to pay those expenses, you will erase any progress made.
Do not allow setbacks to stop your progress. Any progress in debt reduction is good, and if you have to take a break for a month or two, do not beat yourself up. Just begin again when ready. It takes time and dedication to reduce debt and increase wealth.
