Debt Free Secrets

Many consumers find themselves looking for ways to become debt free in a short amount of time. There are many financial advisers and mentors who promote their own methods and tricks for getting out of debt. By choosing a method that works best for you, or combining tips from multiple methods, you can get yourself out of debt and into savings and investments.

Lowering Interest Rates

One way to decrease the amount of time and money spent getting out of debt is to negotiate a lower interest rate with lenders. This can be done on credit cards through either balance transfers or negotiations with the company. In addition, refinancing mortgages or auto loans into new loans with lower interest rates can save money on interest and lower monthly payment amounts to give you more funds to pay toward the principal amount owed. You may also consider consolidating your debts into a low interest personal loan, which will lower the amount of interest paid and also combine debt payments into one monthly fee.

Using the Snowball Method

Made popular by financial radio and television host Dave Ramsey, the snowball method of getting out of debt uses a technique in which you pay off one account while paying minimums on your other accounts; after paying off each account, you then snowball that account's monthly payment into paying off another account.

This method can be done in a variety of ways. You may choose to tackle the debt with the highest interest rate first and then continue paying off accounts one at a time. Another option is to pay off the accounts by either the largest or smallest balance, instead of by the interest rate. Each way can save you money on interest and provide an option for getting out of debt.

Creating a Budget

After making progress in getting out of debt, you will need to create a monthly budget to avoid future debt. This can be accomplished either during the debt repayment process or after, depending on your needs. Setting a budget gives you the option to determine where your money is going each month and allows you to prepare in advance for the types of situations that may have gotten you into debt in the first place. To save time, consider using a budgeting software tool that categorizes spending to see which areas need to be adjusted.

After determining the budget allotments for monthly bills, include a monthly allotment for things like home and auto repairs, vacations, birthday and holiday gifts, and emergency savings. This can keep you from turning to credit cards or personal loans to pay for expensive things and allow you to stay out of debt.