How to Get Out of Debt & Live Prosperously
More and more consumers are looking for ways to get out of debt and break the cycle of seemingly endless interest payments. Through hard work and budgeting, any consumer can get out of debt and work towards living a prosperous, debt-free lifestyle. The key is to live below your means, save for the future, and rely on savings and cash to pay for expenses and new items, as opposed to going into debt to fund purchases.
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Instructions
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Stop using credit. Before you can do anything to create a new lifestyle, you must make a vow to yourself to stop using credit cards or any other form of credit. This first step immediately breaks the cycle of debt.
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Create a budget. Use your last few months' banking statements to determine where each dollar of income goes each month. Categorize your spending according to such areas as entertainment, housing expenses, food, dining out, or automobile expenses.
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Analyze your budget and look for ways to reduce expenses. See if expenses in any categories can be reduced, such as entertainment and dining out. Look at your bills and see if a reduction in services or a change in service provider can reduce your expenditures further. Call your credit card companies and ask for a rate reduction to save on interest expense.
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Earn extra income through overtime, extra shifts, or a second job. Sell unused items around the home through an online auction or yard sale.
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Save two to three months living expenses in a savings account. Do this before applying any extra funds to your debts. This becomes your emergency fund to use in the event of unexpected expenses. This is what you will use as an alternative to your credit cards. Remember to replenish the fund if you withdraw any funds before paying down more debt.
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List all of your debts in order, from the smallest monthly payment to the largest. Pay only the minimum monthly payment on each debt, except for the smallest monthly payment. Add any extra income "found" in your budget and earned through your extra work or sold household items and apply it towards that debt. Keep paying on it until it is paid in full. Next, apply do the same with your second smallest monthly payment's debt. Continue to "snowball" your payments until all your debts are paid in full. This is known as the snowball method, term coined by the well-known financial adviser Dave Ramsey.
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Live as if you still have your debts even after they are paid in full and place the extra money in a savings fund. Use this money to fund any future purchases that are too high for your monthly budget, as opposed to using credit. Frugal living will lead to a very prosperous future.
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Consider keeping your second job and other means of earning extra money. Use the extra money earned to invest in stocks, bonds, or mutual funds, or invest your earnings in an interest-bearing account to earn even more residual income.
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Remember that living debt free and prosperous is a lifestyle, not a race. It may take you months, or even years, to remove all of the debt from your life. However, once the goal is reached, the freedom from debt will be wonderful.
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Tips & Warnings
Use coupons to stretch your grocery and pharmacy budget further. Numerous websites outline how to effectively use coupons as a way to drastically cut your grocery bill. One such website, AFullCup.com, has forums where "super couponers" have listed what they purchased at each store, along with printable coupons to match the items. They make sure to always match coupons to sale items to get the most out of each coupon.
Getting out of debt is a long, hard process. Do not give up. Acknowledge your successes when you do well and learn from the times when you make mistakes. Also, once you are out of debt, remember what got you into that mess so that you do not repeat the same mistakes in the future.
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