Get Out of Debt (Article #4 in a Series of 5)
Taking control of your finances is more than just spending less and earning more money. You must save effectively and get out of debt (and stay out). There are five critical steps to follow to help you gain more control of your finances, which are:
- Track Every Penny You Spend
- Develop a Useful Budget
- Start an Emergency Fund
- Get Out of Debt
- Focus on Your Future
In this article, we will focus on the fourth step in the process, which is: “Get Out of Debt.”
Debt is a killer when it comes to managing your finances. Maybe you struggle with heavy credit card debt or student loans. There is a method to help you eliminate the debt you have, but you will need to be patient and consistent in this effort. To start, pay off your debts beginning with the lowest balance first. Let’s take a look at how this works:
- Order your debts from the lowest to the highest balance.
- Pay the minimum balance on all debts, except for the lower balance, where you can make a higher payment.
- Using your budget, designate a fixed amount you will pay monthly toward each debt.
- When the lowest debt is gone, work on the next lowest debt, and so forth.
When you pay off your debt, you will feel an accomplishment that may motivate you to continue the process. Furthermore, once you get out of debt, don’t get back into it. Limit your credit cards and other loans to “emergency only” use. You should also consider using credit only for larger purchases (e.g., vehicles, homes, etc.), but make sure you are getting the best deal all the way around. The key is to spend less than you earn each month.
A great way to stay out of debt is to make sure you understand the difference between needs and wants. A need is something that is required for you to survive, such as water, electricity, a vehicle (for many), food, etc. A want is something that is not necessarily critical to your survival, but you enjoy having it. For example, wants could be things like attending a professional sporting event, buying a Corvette, getting a morning coffee every day at the local coffee shop, etc. Stick to using your money to cover your needs. Then, when you have some extra money in your budget, you can then start getting some of your wants.
Getting out of debt is a critical way to take your life back. You will feel freer and happier because you will not have the stress of bills and other expenses weighing you down.