Five Steps to becoming Debt Free

America drowns in a sea of debt. The federal government owes over $14 trillion. Despite that unfathomable figure, politicians continue to pile debt on the country’s income statement. Americans seem to have taken the careless spending ways of politicians into their homes. Liquidity now means borrowing against our homes in order to pay mortgage debt. The perilous decline of the economy coincides with the record amount of debt that submerges businesses, individuals, and government entities.

Wall Street has taken most of the blame for issuing worthless pieces of paper called derivatives. The Vegas style wheeling and dealing of phantom securities created a leverage bubble that erased much of individual and institutional investor’s nest eggs. While fat cats take the heat, the true perpetrators of the economic meltdown remain relatively unscathed from criticism.

It was the credit bubble that caused the economy to go into a tailspin. A record number of personal and business bankruptcies were filed in 2010 because banks over extended credit lines to people who did not deserve them. The federal government, with the help of purportedly independent Fannie Mae, did its part by targeting individuals who were patently unsuited to take on home loans. The decrease in fractional reserves allowed banks to flood the economy with bogus money held by people who were never going to pay of their debts. The Great Recession should be renamed The Great Pyramid Scheme.

Despite overwhelming evidence, economic pundits insist that we must spend our way out of the current economic malaise. By spending, they mean the start of a new credit binge. You cannot afford to fall for another con game. Most likely, you are trying to dig yourself out of a hole that has deepened due to spiraling interest rates and reduced personal income. The easy solution to your credit woes is to borrow more to pay off current debt. That is akin to dousing a fire with gasoline. Becoming debt free is the best financial move you can make, and you can accomplish this seemingly elusive goal by implementing five simple steps.

How much do you owe?

Surprisingly, many debtors have no clue as to how much they owe their creditors. They just send in the same payment every month without realizing that the amount they send does nothing towards chipping away the mountain of debt. You must get a handle on your debt situation before you strategize how to become debt free.

Create monthly budgets

One tactic most financial advisors agree upon is the importance of creating a monthly budget in the quest to become debt free. This step forces you to list your monthly expenses and determine how much of it you outlay on debt payments. Creating a monthly budget gives you enough information to decide whether you can address your debt situation or if you require the services of a debt restructuring specialist.

Eliminate debt

Prioritize each debt in the order in which you plan to eliminate the debt source. Debt that incurs the highest monthly interest payments should be the first debt sources that you plan to eliminate. Your monthly budget may make it clear that you cannot handle all of your debt payments. In this case, contact the creditors that you owe the most to and try to restructure your payments. Most creditors will work with in reaching a debt reduction solution.

Change your mindset

Materialism reigns supreme in America. Even spiritual acolytes have lavished themselves with excess. Keeping up with the Joneses is not as important as keeping up with your debt reduction plan. Forgo the crass commercialism that runs rampant through the mainstream media. Refrain from impulse buying that prompts you to buy what you want, but not buy what you need.

No more credit

Banks and lending institutions love people who take out credit lines. They are like leeches that slowly drain your blood. These predators fully comprehend you will never swim to the credit surface because of onerous interest payments. In order to avoid the financial leeches, you should pay for future purchases with barter or cash. Utilize only one credit card for financial emergencies, and refuse to succumb to the credit offers that inundate you at the office, on the road, and inside your home.

You can also become debt free by filing for bankruptcy. The bankruptcy process gives you a new financial start. Since you will not be taking on any additional credit burdens, this may be your best solution for becoming debt free. The stigma of bankruptcy does not carry the same stigma that it did twenty years ago. Bankruptcy gives you a fresh start, but only if you counter the urge to purchase commodities with credit.