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Debt Free: 7 Steps to Become Debt Free

February 27, 2012 | Comments: 0 | Views: 219

Are you carrying more debt than you want? Has your credit rating dropped below an acceptable level? How can you pay off the debt and remain afloat? The following seven steps were implemented by a couple with high debts. They changed their spending habits and are reducing debt. They have worked out a plan to be free of debt and own their home outright within eight years.

Here are the seven steps they followed:

Step 1: Establish an emergency fund. This is a backup for major car repairs, unexpected doctor bills, etc. Save, for example, $1,000, and make certain it goes only for real emergencies.

Step 2: Establish a money plan. The money plan lists the sources and timing of income to be received during the month. Allot every penny to a specific category until all income received is identified with all appropriate categories. Examples of categories are charitable contributions, utility bills, home mortgage, medical (doctor, dentist, and prescriptions), allowances (for every member of the family), husband-wife dates, vacations, saving for a new car, saving for children education, etc.. You can have as many categories as you desire.

Step 3: Schedule a money planning meeting for routine times when money comes in. This could be weekly, biweekly, twice a month, or once a month. This meeting should take no more than 15 minutes to review the money allocation to categories and adjust any previous allocations of unused money.

Step 4: Cut up the credit cards and go to a cash purchase basis only. Admittedly, some store credit cards give substantial discounts when you present the card at the store. Such stores usually permit cash payment after presenting the card. Therefore, keep those cards for the savings, but pay the bill in cash before leaving the store.

Step 5: Establish a system for handling your routine cash payments. For example, have an envelope for each category for which you need cash during a shopping trip. Get the needed cash from the bank and in the appropriate envelopes. Carry those envelopes for your shopping.

Step 6: Decide on how to pay the debts. A couple of approaches have proven successful. Each approach allots the total amount to be paid. One approach focuses on making minimum payments on everything but the highest interest debt. All of the unpaid allotment goes against the highest interest debt. You continue this until that debt is paid. Then, you move to the second highest interest rate. The second approach focuses on paying off the smallest debts first. The second approach has the advantage that you see debts disappearing sooner in the process. That is a great motivation to continue on.

Step 7: Be patient. Paying off the debts will take time. Depending on the nature of your debts, the process could take several years.

The sun shines so much brighter when you are debt free, and you control your financial future.

I invite you to learn from additional money and debt management tips by visiting Control Spending Report to review the report right away.

Source: EzineArticles
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