Living debt free means saving up for things, it means making sacrifices and resisting impulse purchases. It means planning for the bigger purchases and making sure that you are using your money for the things that matter most to you and your family. People often look at credit as an easy way to get the things they want now. They fail to look at the long-term consequences and costs that debt really brings to them.
The first step to becoming debt free is to know what you’re spending. There are two kinds of spending. You’ve got your fixed expenses which stay the same every month. That’s your mortgage/rent, car payment, insurance etc. Then you have your variable expenses. Which are the expenses that vary every month, like clothing, entertainment, food outside the home and gifts. Cutting down on your variable spending will give you that extra money to put towards your debt payments or towards savings.
Grab a spiral notebook, and for one month write down every cent you spend. Everything ads up, like that $2.00 coffee every morning or the $5.00 school field trip for your child. At the end of the month, add up all the money you spent. You will finally realize how it all quickly adds up. This is called your variable expenses.
Gain control of your spending. After you have wrote down for a month and seen where the money is going, it’s time to take charge and make a budget. Here is a website that will help, http://www.gailvazoxlade.com/resources/interactive_budget_worksheet.html here you will need to put in your information and it will do all the calculations for you. Credit Cards are a huge problem as well. I am recommending this website http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp here you will find a calculator that lays it all out for you. Makes it simple, and shows you the reality of how easy it really is to become debt free if followed. Sit down with a list of credit cards you own, their balances, interest rate and minimum payment. This calculator will show you how much interest you are actually paying out. Use this calculator in many ways, first put all the info it asks you and then add that you are going to pay minimum payment only. You will see how high the amount of interest you will pay out and also the endless years it will take to pay off. It seems hopeless right? Well, it’s not. Continue to use this calculator, type in the info it requires, but this time don’t pay the minimum on your highest interest rate credit card. Pay a little extra. It will shave off many years of being in debt.
The plan is, pay as much as your budget will allow you, to the credit card with the highest interest rate. And pay the minimum to your lower rate cards. Once the high interest is paid off, tackle the next highest, and so on. The calculator will even show you what you should be paying on every month for every year that it will take to get out of debt.
You work hard for the money you earn, we all have families to provide for, and we cannot afford to not have control of our spending. It’s time to take charge of our finances and get ourselves on the right track to becoming debt free!