Can you imagine how your life would be if you were debt free? Your savings account would be bulging at the seams from all the money you are able to add to it because you had no debts. When you owe nothing your biggest problem would be deciding what to do with your paycheck. That dream vacation to Tahiti wouldn’t be just a dream anymore. You would have extra money available to help your favorite charity. Have you ever wanted to start your own business? You’d have money available to do this. You might even be able to tuck away enough money to retire early and still leave your kids a nice inheritance.
The good news is that these dreams don’t have to be dreams. Whether you’re faced with the need to help your kids get a college education or you’re nearing retirement, you can actually become debt free.
Tip #1: Learn your habits
The first step in becoming debt free is to think about your debts. There are actually good debts and bad debts. Good debts include things like your mortgage and student loans as they will not depreciate in value over the years. Bad debts are, of course, credit card debts, auto loans and personal loans. What you want to do is keep the good debts but get rid of as many of the bad debts as possible.
You should also keep track of your spending for about a month. You can easily do this by saving all your receipts. Make a list of your spending using these receipts and then go through it looking for “non-essentials.” These could be anything from expensive premium coffee too pricey lotions and cosmetics. After you find these personal “weak spots,” try limiting those purchases to just once a month. You might be shocked at how much you can save to pay down your debts.
Tip #2: Avoid temptation like Ebola
This means physically separating yourself from those things that tempt you. Do you find it impossible to not stop into that electronics store you pass every day? Does that fashion boutique down the street from where you work pull you in like a powerful magnet? Do you go out for lunch every day at a cost of seven dollars per? You could avoid popping into that electronics store or fashion boutique by taking a different route to and from work. And you should definitely bring a lunch to work at least two or three times a week. This could save you as much as $200 a month. In other words, sit down and make a list of those things that tempt you to spend money and then do everything possible to avoid them.
Tip #3: Choose a strategy for paying off your debts
There are hundreds of books, articles and Internet sites with tips for getting out of debt. Some counsel you to first pay off the debt with the highest interest rate while others say you should first pay off the debt with the lowest balance. The idea behind first paying off the debt with the highest interest rate is that you will then have more money available to pay off the debt with the next highest interest rate and so on. This means your payments increase in size with each pay down and you will clear your debts faster. Those such as the financial guru Dave Ramsey that favor the strategy of first paying down the debt with the lowest balance say that it’s more motivating to see debts paid off quickly, plus this also frees up money to pay off bigger debts. But the important thing here is to choose whichever of these strategies appeals to you and get started on it. If it doesn’t work for you, switch to the other. Or consider another option such as a debt consolidation loan.
Tip #4: Hunt for values like a coon dog chasing a varmint
There are a number of different ways to save money. Some people insist that the best solution is to use coupons while for others the only answer is to buy everything in bulk at one of those warehouse club stores. And still others make frequent trips to their stores to see what’s available on sale at the moment. Whichever of these would make the most sense for you will depend on which “camp” you’re in. If you have a big family you’ll probably find the best values at a warehouse club store. On the other hand, if you love fresh food and enjoy hunting for bargains then coupons might be your best option. Many supermarkets now have aisles of bulk items where you could find good values and also save money with coupons on your non-bulk purchases.
Tip #5: Anticipate
If you work towards making a major purchase this can build anticipation towards owning
it and make things seem even better when you are able to actually buy it. Plus, this eliminates the dread of having to finance it and create more debt. One way to do this is to open savings accounts for specific goals. For example, you could have an account devoted to saving money for your dream vacation. This keeps the money from leaking away on other purchases. When you can watch the balance in a savings account go up and celebrate the steps you’re making towards your spending goal, this can help you avoid making other small purchases.
Tip #6: Treat yourself as if you were a bill
You might not ever think about skipping a bill from your local utility but are you saving regularly? If so you are the member of a minority. What you need to do is treat yourself as if you were that bill from your local utility by allocating $50 to $100 off the top of your earnings to pay yourself. Then see how much you miss it. If the $50 or $100 creates too much of a strain on your budget, try a smaller amount. If you don’t feel any kind of a pinch then you could think about adding more to your personal “bill”.