Learning Steps to becoming Debt Free

The booming economy of yesterday has been replaced with the need to be frugal with spending. Once 2008 hit with the sub-prime fiasco and the start of a new Depression, many families were caught off guard, saddled with debt they could not pay. Unemployment, home foreclosures and evaporating investments reduced the net worth of families who continue to struggle against credit card interest rates that haven’t gone down.

All these factors simply mean that you need to be as vigilant about money as were your grandparents. Whether your debts are high or you are lucky not to have too much debt, you still need to take charge of your finances and keep debt from drowning you.

The first step to financial freedom is through taking an aggressive approach to what you owe. You need to bring your debts in balance against your income. That requires cutting back on things that you’ve accepted as normal over the years.

If your financial picture is dire, you have two options. A second mortgage may consolidate your debts provided you still have equity in your home. The other option is to get a second job to pay down those bills as quick as possible. But if your debt situation is extreme, bankruptcy may be your only option.

Learning to become debt free in today’s economy should be among your top priorities. Some methods include:

-Switching to cash only basis. Cut out the credit cards and pay for your purchases by debit. You can’t spend more than what you have in your bank account.

-Analyze your income to expense ratio. Most families have no idea how much they spend every month as they don’t have a budget. Consequently, they find themselves short of cash at the end of the month and rely on credit to pull them through.

-Determine what you really need. It’s given that you have to pay your mortgage, and need insurance for your car. You can’t get away from paying taxes. And you certainly need to heat your home, feed your family and provide clothing. Anything else is of secondary importance.

-Repair and extend the life of what you have. That includes keeping the car longer. Furniture and appliances can last several years.

-Pause before making any major buying decisions. Wait 24 hours or longer. If you still feel you need the item and it can be useful, you can buy it after the cooling off period.

-Make a list of essential items when you make up your food budget and stick to buying them. Any money left over can go to those sweets for the family. Use coupons, take advantage of 2 for 1 specials and buy in bulk. They can save over 30% on your food budget.

-Cut out non-essential services. You don’t need a land line phone with long distance and calling features when your cell phone can do an equal job. You don’t need to have your clothes pressed and dry cleaned every week.

-Shop for better deals on your insurance rates. You shouldn’t have to pay the same rates for an older car than a new one.

-Save on heating costs. You don’t need to keep the lights burning and the temperature high when you’re absent from home or sleeping. Wash a full load of laundry in the washer with cold water. Wash a full load of dishes in the dishwasher. Dry your clothes on a clothesline instead of in the dryer.

-Learn to barter with your neighbors. It was the preferred exchange of products long before coinage came into being. It’s a good way to get to know your neighbors. Savings can be considerable when neighbors band together to form a barter club.

One of the major reasons for getting debt free is that it enforces discipline, a valuable lesson that works well under any economic conditions.