A debt elimination plan is easy to set up. It may be more difficult to follow. It takes commitment to become debt free, but being debt free will allow you to build wealth. It allows you to take control of your finances and make life choices on long-term goals, instead of just worrying about your daily choices and paying the bills. Here is what you need to do begin the process of debt elimination.
First, you need to list all of your debts. This list should include all of your debts, the amount that is owed, as well as the interest rate associated with it. Then order list from the highest interest rate to the lowest interest rate. This is the order that you will use to pay off your debts. You may want to adjust your debt payment order a bit depending on balances and tax balances. Add up the total of all of your debts. This number can be shocking, and motivating to help you to become focused on debt elimination.
The next step to debt elimination is to get a household budget, and to stick to it. In order to get out of debt quickly you need to strip out most of the luxuries in your budget. Get it down to the bare minimums. Try to keep your spending on groceries to a bare minimum. Look at ways that you can reduce you fixed expenses in order to free up more money to pay towards debt. You should have a goal of being able to apply at least two or three hundred extra dollars each month towards your debt.
The third step of debt elimination is to set up a $1000.00 emergency fund. Put this money into a savings account and access when an unplanned emergency expense comes up. You may use the money that you have freed up in you budget to put towards this fund until it is built up. An emergency is something that must be taken care of immediately like a broken arm or a car repair. An emergency is not replacing your sofa or finding that perfect set of shoes on sale. Be sure that you are only using this money for a real emergency and not to cover you when you overspend.
Apply the extra money you found in your budget to the first debt on your list. Do not divide the money over all the payments. By focusing on one debt you are putting more power into the money and you will pay off that debt much sooner. Once you have finished paying off the first debt move on to the second. You should apply the amount of your first payment, plus the extra money to debt two, giving yourself an even larger amount to put toward the next debt. Continue with this pattern, rolling the old payments into the next debt on your list, and you will eliminate your debt much more quickly. You can speed up the plan even more by finding extra money to apply to your debts. You should make sure you understand your bank's policy about additional payments to make your extra payments work the most effectively for you.
Occasionally ,you may need to find a little motivation or boost to keep yourself focused on getting out of debt. Picking up extra time at work, getting a second job or selling some items can help you to eliminate your debt much more quickly. Additionally if you set mini goals and allow yourself small celebrations (like dinner out) when you pay off every $5,000.00 dollars of debt or a similar system, you will be able to move through your debt elimination plan more quickly.
Once you have worked so hard to get out of debt, you should make a commitment to stay debt free. This means planning for your expenses and saving up for them. These are called sinking funds, and you can have them for everything from home repairs to vacations. It also means saving up to buy your next car and sticking to your budget, but you will now have more wiggle room in your budget. You should also focus on saving money and building wealth, because this will help you to be able to absorb the bigger expenses without going back into debt for them. A solid financial plan will help you reach your goals. Take the time to set one up and talk to a financial planner so you stay on the right financial path.