How to Create a Debt Free Finance Plan

Living debt-free is possible with a plan.

With credit card and car loan offers flooding your mail and email on a daily basis, the idea of living debt free can seem impossible. It may seem improbable for you to even imagine life without a house, car or credit card payment. But living debt free can become a reality. A debt-free finance plan can give you the freedom to live your life without the burden of debt.

Instructions

Reduce Your Spending

1. Purchase items with cash only. If you cannot pay for it in full, do not buy it at all. Close and cut up your credit cards so you will not be tempted to purchase anything on credit.

2. Eliminate frivolous spending. Turn off your cable or satellite service and invest in a TV antenna. Cook your meals at home instead of eating out. Rent movies and buy microwave popcorn instead of going to the movie theaters.

3. Sell your car and buy a used one with the cash from the sale. Reduce your insurance from full coverage to liability only.

4. Create an emergency fund of at least $1,000 using the money you've saved from reducing your spending.

Pay Off Your Debt

1. Pay off your smallest debt by adding the extra money from your reduced spending to your minimum payment.

2. Pay off your second smallest debt by adding the extra money from your reduced spending and your minimum payment from your smallest debt to this debt's minimum payment.

3. Repeat the process of adding the previous debt's minimum payment and the extra money saved from your reduced spending to the next debt's minimum payment until all your debt is paid-off, excluding your mortgage.

4. Save three to six months worth of monthly expenses using the money from your reduced spending and the debt you've paid off.

5. Pay off your mortgage early using the money you've saved from reducing your spending and paying off your debt.

References

• Dave Reamsey: The Seven Baby Steps