7 steps to become Debt Free

From: Janet Williams Your Guide to Debt Settlement. Want a Free Debt Counselling SignUp Now! Last Updated on 7th March 2008

I received an email from Alex Matt (name changed) seeking help to overcome his debt problems. Given below is the snippet of the email:

I will graduate next year and I am sure I will get a job after that. But now I am in debt. The amount isn't much, only 3k or so, but circumstances are such that I can't afford to make any payments now. I had taken admission in college with the help of my parents. My dad is bed ridden due to sickness and the only earning member in my family is my mom who strives day and night to make ends meet. But that did not stop my parents for paying for my college because they always wanted to give me a good education. But i forgot all that and as soon as I entered college I became a spendthrift and started throwing away the money that was given to me to pay for my college fees. I even went ahead and took another couple of credit cards. Now I have realized my mistake and want to be debt free. I am looking for a job, so that I can pay my college fees now or else I have to leave my studies and I do not want to do that as my parent's dream and efforts will be shattered. But I can't go up to my mom now to ask for the money, she is already on the verge of breaking down with all the stress. Is there any way in which I can get out of this? I want to get rid myself from all the debts that I have incurred but I wonder whether I can really get rid of all my debts. Please help!
Thanks

Living a debt free life is not unattainable though it is difficult and requires determination, time, patience and discipline. Given below is a run down of 7 steps that will assist you in the journey towards a life that is free of financial worries.

Step 1 - Admit that you are facing problems in managing your debts:

The first step towards debt free life is to come to terms with the fact that your debts have become unmanageable. Leaving bills unpaid and ignoring the problem does nothing to wipe off your existing debts; in fact it only worsens the situation. However, the fact that you're reading this article implies you have already accepted that you are in debt and you're ready to take the next step.

Step 2 - Assess your current financial condition:

Make a list of your debts. Next to the listed debts include the name of the creditor, the total amount you owe, the rate of interest you are being charged and the monthly payment you make towards this debt, if any. It will not only give you a clear picture of your financial standing but will also assist you in choosing an appropriate debt solution. Or else you can also take help from our Debt Income Ratio Calculator.

Step 3 - Prioritize your debts:

The next step is to decide which bills to pay first and which ones you can delay. It is suggested to concentrate on paying off the debts that carry a higher interest rate. You will save more money in the long run by ridding yourself off these expensive loans first, while keeping up the required repayments on the others. While making the repayment remember to pay a little more than the minimum as minimum debt repayments only covers the added interest; it makes no impact on the principal amount.

Step 4 - Create a feasible monthly budget for your expenses:

List all the essential expenses (like food, essential clothes, housing rent, electricity, gasoline, education fees, health expenses etc.) and the non essential expenditures (like spending on restaurants, movies, video games, parlors, gifts, snacks etc.). The non essential expenditures can be completely cut off or lowered substantially till you become debt-free. Even amidst the essential spending, you can look for options that will help you in saving without making any compromises.

Evaluate your monthly balance by subtracting monthly expenses from your monthly income. This will tell you how much money you have at the end of the month so that you can start paying off your debts. Do not forget to keep some money aside for unexpected expenses. As your debt load goes down, you will notice a fall in your interest costs.

A word of caution here: Remember to stay within your budget guidelines.

Step 5 - Say a big NO to any kind of new debt:

As you are in debt up to your eyeballs, adding on a new debt will increase your debt load and will hinder your journey towards a debt free life. You must decide once and for all that you will not add any new debt.

Step 6 - Talk to your creditors:

It is advisable to notify your creditors about the financial hassles you are facing in paying the bills. They may be willing to chalk out a repayment plan for you or renegotiate the loan terms and even temporarily suspend payments.

Step 7 - Seek professional help:

If you are not being able to manage your debts on your own, then you can opt for professional credit counseling. You will be guided by financial experts who will help you in taking a step closer towards debt free life by analyzing your financial status and then sorting out a realistic debt repayment plan for you.