From the womb most Americans are taught that in order to have the thing we want in life, we must buy on credit and incur debt. However, that simply is not true. There is a better way; you can have the things you want and still live debt free.
Living Debt Free Takes Discipline
The first step toward living a debt free life is having a mindset of discipline. Just like dieting and exercise, you must have a goal and a system in place. If you’re already in debt, you will have to change the way you think about credit and how you spend your money. You will also have to learn how to control impulse spending.
Budgeting – The Non-Negotiable First Step to Living Debt Free
Budgeting isn’t something anyone enjoys, but it is a critical skill if you want to live debt free. You have to know how much money you have coming in and how much is going out and designate where it’s going. When you’re in debt, you are no longer in control of your money; the lender or creditor is.
There’s no rule about how you should budget, so use whatever system works for you. It might be as simple as a monthly spreadsheet of income and bills to start. There are also online systems and smart phone apps which may make it easier for you. The important thing is not which system you choose, but that you maintain your budget consistently.
Cut Your Expenses to Free Up Money for Savings
This is where most people fail at living debt free. They’re simply not willing to give up that expensive cable package or the new car every two years. But if you want to live debt free then you must either earn more or spend less. If you’re not sure where you can cut back, try tracking every expense for a month. You might just be surprised at how much you spend eating out, renting movies, and buying new clothes.
Save for a Rainy Day
Before you can truly live debt free, you will need to build an emergency fund. Otherwise you may just find yourself right back where you started the first time the car needs a major repair. The minimum goal is $1000 in savings set aside for true emergencies. A true emergency is an unexpected trip to the hospital or a death in the family.
Make a Plan to Pay Off Your Outstanding Debts
With your budget in hand, take a look at your outstanding debts and plan out how you’ll repay them. On popular method is known as the “debt snowball.” It involves listing all your debts from the smallest balance to the largest. Make the minimum payment on all but the smallest debt each month. For the smallest balance, pay as much as you possibly can. Once that bill is paid off, move on to the next smallest, using the same strategy.
Depending on how much debt you have, it may take months or years to be completely debt free, but if you maintain your budget and live within your means, you will be successful.