At the beginning of the 20th century, the American Dream was simple enough---land a good job or build a business for yourself, buy a home and raise a family. In 2011, the American Dream has changed as many people live burdened with debt that they can never hope to pay back. Becoming debt free has become the new American Dream and realizing that ideal is not as far-fetched as it might seem.
Evaluate "Necessities"
If you are drowning in a sea of unpaid bills and high-interest credit card debt, you need to do something and the first step is prioritizing your expenses. Of course, you'll first need to understand your financial situation. Start by itemizing all your debts---from your home mortgage to your gas card. Find out how much interest you are paying and the monthly minimums for each. Compartmentalize your expenses, separating into necessities and luxuries. You might be surprised to learn what you consider a necessity. You'll need to start making hard decisions here---you might decide to cut-out that gym membership, opt for basic cable or a less expensive phone data plan. You might decide to downsize your home or your vehicle. Those are lifestyle changes that can be painful, but they are the start to your life free of debt.
Pay Wisely
You have listed your debts with their interest rates and now it is time to start paying off balances. Theories on how to pay off these debts abound. Some people believe in the "snowball" approach, putting the most money towards a balance, either the one with the highest interest rate or the lowest balance, and paying the minimums on the others. Once that bill is paid, take that amount and apply it to the next in line. Financial experts, such as Dave Ramsey, believe in paying off the smallest debts first for an emotional uplift. However you decide, pick a strategy, and start applying that approach to your debt.
Budget
Planning a family budget is about as fun as getting a root canal, but like dental work, eliminating the problem causing the ache in your life is necessary. You must create a budget that is both realistic and allows you to accomplish your intended goal of being debt free. Your budget must account for the payment of "necessary" expenses (housing, food, utilities, medicine, transportation and clothing), repayment of debt and savings. You'll also want to build in rewards for meeting and exceeding your budget. If you have a family, get everyone involved and make a contest of saving money. Do what is necessary. Although the first steps may be painful, eventually you will begin to adjust to your new normal way of life.
Don't Stop
All experts agree, staying the course with your budget and your debt management plans is key. Emergencies and unexpected expenses arise but, if you have budgeted properly, you will meet those challenges without throwing your expenses out of whack. Pay with cash and keep a credit card with a low interest rate on hand and use only in the event of an emergency. To help you stay the course, use budgeting software, print out the charts that show your progress and involve everyone in the process of reaching your goals. Debt management strategies do work, but only if you apply them consistently over time.
0 comments:
Post a Comment