Eliminate Debt in 4 Steps
On the
road to financial freedom the first step is to get rid of all your debt, not
including good debts, like a house that you might own, and have tenants paying off
the mortgage for you.
You
need to know who you own, how much you own them, and what the interest being
collected off of you is.
Add up all the expenses and all the
money coming in. As long as the amount of money coming in is greater than your expenses amount, eliminating your debt
is doable, otherwise you must find a way to cut expenses or increase your income.
2- Develop a plan:
Great,
now being aware of the numbers there two strategies to choose from.
1 – Pay the highest interest debts first. This is the most
effective strategy, because, that is the debt that can snowball worse.
2 – Option number 2 is to pay the smallest debts first, that
way getting an accomplishment happiness boost that will create a stimulation
to continue on a good path.
No
matter which path is chosen, know all the expenses and all money coming in.
Also, never forget to make at least the minimum payments on time, that way
avoiding late payment fees.
Rule number one to make money is to
never lose money.
3- Create saving habits:
Emergencies
always arise. A good strategy is to create an “Emergency Fund”, also at times
called an “oh shit fund”. You may start small with 500 to 1,000 dollars and
with time build it up.
Another
trick is to never use a credit card, because if we can’t afford something
today, we definitely cannot afford it next month (not saying there’s no place
for credit cards, as long as the credit card is fully paid at the end of the
month, no interest will be added to it).
Once
done paying off all debt, that 500 dollars rainy day fund can be grown enough
to cover 3 months of expenses. That is ideal to start having some freedom. To
prevent working a job we don’t want or feel stuck, or even look for something
better, the chance to do so would then be there.
If you
spend $1,500 a month for example; a 3 months rainy day fund would be around
4,500.
4- Invest:
None of
the steps mentioned here were temporary, they are a buildup. This is also
called budgeting. Once all debt is dealt with, and the Emergency Fund is saved
away it is time to invest, which is a topic for another post.
Best of luck squashing your debt. Comment bellow what strategy has best worked for you in the past, or is currently working for you.
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