According to a recent study, the average American is nearly 30,000 in debt excluding mortgage debt. If you look around you, it’s easy to see why. We live in a world where we are very pressured to buy, whether we can afford to or not. Unfortunately there is no shortage of lenders willing to front us the money to buy things we can’t afford.
If you’re like most Americans you haven’t yet paid off everything you’ve purchased. If credit card debt and other debts are weighing on you, here are five tips for becoming debt free:
1. Excessive debt is essentially caused by one thing: spending more than you earn. Most people would be surprised at how much more they spend than they make. That’s why finance experts recommend that people track what they’re actually spending money on. Take a look at your spending habits to determine what you’re really spending your money on. If you know you’re spending too much on entertainment or eating out, then you know where to make changes to get your spending under control.
2. Unfortunately, closing your eyes and wishing your debt would just go away doesn’t work. To overcome your debts you need to confront them first. Make a list of all of the debts you owe so that you know what you are up against. You need to know your starting point before you can start eliminating your debt.
3. Sometimes just the thought of getting out of debt is overwhelming. It may seem impossible. But you’ve got to start somewhere. The debt snowball method makes the task manageable. You choose one of your debts to be your first priority and you dedicate as much of your income as you can afford to paying off that debt. For the rest of your debts you make the minimum monthly payment. When your priority debt is paid off, you turn your attention to the next one.
4. As you see your debts diminishing, you may be tempted to start spending a little more again. But that means you’re digging the proverbial pit deeper for yourself and creating more trouble for yourself in the long run.
5. This is more of a preventative measure that won’t be feasibly until after you’re out of debt. But finance experts agree that one of the best ways to avoid debt is to have an emergency fund. Each month put aside as much as you can reasonably afford into that fund. If any kind of financial crisis such as job loss or medical emergency should arise, you’ll be prepared to handle it without going into debt.
A final word
Sometimes debt problems are made worse by other circumstances outside your control such as medical emergencies or sudden job loss. If you have excessive debt and your current income is insufficient to pay it off, bankruptcy may be a viable option that will allow you to get out of debt and start fresh.
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