Money Infant

Can you imagine a debt free life? What would it be like? You would probably sleep better at night without worries of high interest credit cards and personal loans creating nightmares. You would also very likely be able to save more money, creating even greater peace of mind. Maybe you would be able to finally start that business you’ve been thinking about or travel more frequently or pay for a better education for your children. All of these and more are possible by simply following the 9 easy steps for getting out of debt presented below.

1. Promise to spend less money than you make. – Make this promise to yourself and your family and then do it. Make spending less than you earn a habit as deeply ingrained as breathing. No more credit cards, no more loans, no more debt. If you can’t pay cash you can’t afford it.
2. Differentiate your bad debts and acceptable debts. – While there is no good debt, not all debt is necessarily bad either. Any debts that carry an interest rate lower than 8 percent and/or have positive tax benefits can be ok. Another metric to look for is increasing assets. That is, anything that appreciates in value might be ok when purchased with a loan. Some examples of acceptable debts include the mortgage on your home and low interest student loans. Car loans can be ok sometimes. They often meet the low interest rate requirement, but they are never an appreciating asset. If possible, always buy used and pay cash when you go car shopping. Bad debt is pretty much everything else, from those pesky plastic cards in your wallet to your home equity loan and including the dreaded payday loans and their ilk.
3. Get rid of credit cards. – No one needs more than 1 or 2 credit cards and that includes you. Get rid of all your cards except the 1 or two that have the lowest interest rates or perks that you might actually use such as cashback or travel rewards. Keep these cards for emergency or necessary uses only! Take all the other cards and cut them to shreds. Don’t hide them or freeze them, cut them up so you cannot use them.
4. Assess your current bad debts. – Gather up all your latest bills and sit down with them. Find out the minimum monthly payment for each and then add them all up to get a monthly minimum payment. Now make a promise to pay this amount PLUS a large additional amount each month. This should be enough to make solid progress on at least one of your debts on a regular basis. If you are unable to pay the extra each month then you have some hard decisions to make. You will need to either cut back on your spending or increase your income. No one said it would be easy to become debt free, but I can assure you it is oh so rewarding!



5. Determine your highest interest rate debt. – While you have your bills out in front of you figure out which one has the highest annual interest rate. This debt, this one debt, is the one you will now focus all your energies and resources into paying off. Once you pay off this debt move on to the next highest annual interest rate debt. Repeat until all of your debts have been wiped out.
6. Negotiate for lower interest rates. – Any account charging you more than 13% interest is a candidate for an interest rate reduction. Find the customer service number on the bill, call it, and ask them to reduce your interest rate. Use whatever means necessary to convince them it is in their best interests to reduce your interest. Tell them you are a loyal customer who wishes to remain that way, tell them you’ve received offers from other companies for lower rate cards, whatever it takes. Expect the customer service people to make you feel badly about asking for an interest rate reduction, but don’t waver in your request. This move alone could end up saving you hundreds if not thousands of dollars in interest charges (depending on your debt level).
7. Stay the course carefully. – You want to remain aggressive in paying down your debts, but not so much so that you jeopardize more critical loans such as your mortgage or auto loan payments. Any secured loans (those which as secured by assets that the bank can take from you if you miss payments) should be given first priority each month.
8. Don’t go it alone. – There are plenty of others out there struggling with debt who know exactly how you feel and can offer you their support. Check out groups like The Debt Movement to get help, support and information about eliminating debt and staying debt free.
9. Celebrate! – It was a long road, but you are finally debt free! Celebrate your new found independence and maybe even treat yourself a bit (but pay cash), you deserve it! You are now free to pursue what YOU want from your money, rather than supporting the banks and credit card companies and doing what THEY want. Congratulations!

And once you make it to step 9 please come back here to let me know. Anyone reading this have other helpful tips for eliminating debt and living a debt free life?