How to Remove Debt from your Life

How to Remove Debt from Your Life

Many people believe that simply making more money will solve their problems but, in most cases, it only causes bigger problems. If you do not take control of your cash flow, making more money will not make you richer. In fact, most people get deeper into debt every time they get a pay raise!

In managing your money, your goal is to get out of debt and have a constant cash flow.

-Compare your assets and liabilities: Determine your assets and liabilities gives you clear picture of what you are worth. Calculate your liabilities to show you how much debt you carry.

-Know the good and the bad debt: Two kinds of debt traditionally exist, although there is a third you-just-have-to-pay-it to live debt. This last type of debt would include electric telephone bills. They are often referred to as expenses, although they are owed debts.

Good debt is the debt that someone else has paid for you. For example, the bank gives you the mortgage loan, but your tenant pays for it.

Bad debt is what you still owe on your car, your credit cards, your unsecured personal loans, and even your student loans. Obviously, the name of the game is to have as few bad debt liabilities as possible and increase your wealth substantially.

Bad debt works against you, the more debt you are burdened with, the longer it will take to dig yourself out of a hole. Therefore, your first priority should be to eliminate non-productive debt. When you are debt-free, take the monthly amount you were paying on your last debt, and put that money towards investments.

-Income and expenses: Most people cannot get ahead financially because every month, they have bills to pay. Every month, most people pay everyone else first and pay themselves last, if they have anything left over. Put aside a set percentage from each pay cheque or each payment you receive from other sources. Deposit that money into an investment savings account and only take it out when you are ready to invest.

-Develop a budget: Is that extra cash burning a hole in your pocket? To keep you spending on track, you need to establish a budget.

-Use your savings: If you have socked away a ton of cash in your bank account and you have revolving debt on your credit cards, it’s time to pay those off.

-Trim the fat: Pick a few expenses you can live without… for good. Establish an emergency fund that equals about three month’s worth of basic expenses. Then you won’t have to turn to plastic for every unexpected bill.

-Kick the habit: Your personal motivation and goal setting can help cure overspending.