Overcoming Debt

It is amazing how easy debt is to a accrue yet how seemingly impossible it is to eliminate. Debt can be overcome easily with will power and desire to see it through. Not that the process ever feels all that easy though. These are some ways that I regained control of my balances and in less than a two years, became debt free besides my mortgage.

Step 1: Stop Spending
Seems easy enough but this is usually the toughest part for most people. Stop using your credit cards. Stop using any line of credit you have available to you. Before you can really tackle the balance of your debts you need to eliminate the sources of them. Force yourself to live on less than your income by setting a budget and sticking with it.

Step 2: Build an Emergency Fund
One of the easiest ways to cut your dependance on your credit lines is to build an emergency fund. When you build your own stash of money in the bank you eliminate the need to depend on credit to bail you out when situations arise. The amount of money needed in the emergency fund varies widely among advisers. It ranges from a few thousand to a year's worth of expenses; I.E. car payments, rent or mortgage, utilities, etc. For our purposes though I would say for most people a few months of expenses should be plenty. You just want enough to cover you in case something comes up like an appliance goes out or your transmission in your car fails.

Step 3: Create a Snowball Effect
Once you have stopped your excess spending and built your cushion for emergencies you're ready to tackle the debt head on. Many people talk about this concept in many different ways. The idea is simple and the results are amazing. You come up with a list of all your debts and organize them in one of a few ways. Some say to list them in order of the remaining balance. Some say to list them by interest rates. Personally I believe listing them by interest rates is the best way since you would pay off the highest interest rates first and therefore save more money.

The way the snowball effect is laid out is you take one balance of the many and put as much extra money as you can afford towards it every month. Even if you can only afford an extra $20 or $50 dollars it will bring the principle down quickly. Once you completely pay off that account, you take the same amount you were paying on the previous bill (minimum payment+extra$) and add it to the payment you've already been paying.

By the time you get 2 or 3 of the accounts paid off you are putting a substantial amount of debt eliminating force behind every payment made. You can have your cars paid off, have no credit card debt, and could even cut many years off your mortgage.

Step 4: Keep on the Right Track
Once you have all of your debts cleared up it is a good idea to keep yourself to the same strategy except putting your money into savings instead of finding new ways to spend it. If you clear all your debts then get back into a routine of spending nearly all you make it will be easy to fall back on the credit. Wouldn't it be nice to buy your next vehicle with cash and not pay a single cent in interest simply because you paid yourself the car payments before you needed the car. You'd have more bargaining power at the dealership to get a better price and you wouldn't have to worry about making the payment on time ever.

This is the system I still use today and it has allowed me to live free of debt and worry from financial stresses for 2 years now. If you would like to add to it or comment on it please feel free. I enjoy hearing feedback and new ideas.