If you are really serious about getting out of debt and putting your best foot forward towards financial freedom, there is some advice that you can use to make this really happen. The idea is to take small steps towards that goal until it is fully realized.
By following these easy steps you will be able to get rid of all your debt and have a fresh beginning. If you’re ready to get started, read through each step and get it fully implemented before moving onto the next.
1. Put away $1000
You should always have an emergency fund that you can count on as a backup plan. Unexpected events will happen in your life and you can count on them as much as you can count on waking up the next morning. There is no way to avoid emergency situations and you absolutely have to have $1000 as a minimum set aside.
2. Pay off all your debts
You will need to make a list of all your debts in the order of smallest to largest. The list will only consist of the amount of the debt and you shouldn’t worry about interest rates. That would only be a consideration if two debts on the list have the exact same amount owing. Paying off your small debts first will start the momentum of getting a debt completely handled and scratched off the list. Once a few of these debts have disappeared you will feel lighter and more able to tackle the rest.
3. Grow your emergency fund
Open up a savings account and start saving extra money that will be added to the thousand dollars that you already have in your emergency fund. You should build up to an amount that equals approximately 3 to 6 months worth of expenses. This builds up a buffer for unexpected emergencies.
4. Start investing
Once you have completed all the previous steps you only have your house payment left to worry about. At this point you can start investing money. A good rule of thumb is to invest 15% of the income earned and save the rest of your extra income for the next two steps.
5. Start saving for college
It is a good idea to start saving for college tuition for your children as soon as you possibly can. You don’t want your children to have expensive loans that they have to pay off as soon as they are finished school and starting their first job. The best way to help them out is by setting up a college education savings program.
6. Pay off your mortgage
The rest of your extra money should be put towards getting the mortgage off your list of debts. Since you are attacking only one single debt, you will see it decrease at a phenomenal rate. What a relief it will be to have your mortgage completely paid off and be completely debt free.
7. Be grateful and give
Continue to grow your earnings so that you can leave a good inheritance to your children and give to charities. There are a lot of people out there that could really use some financial help and it is up to you to find the charity of your choice that you want to support.
These steps are a fail proof system of getting out of debt. If you follow them and don’t jump ahead to the next step before the previous step is done, you’ll definitely get out of debt and enjoy all the benefits that go along with it.
This article was written by personal finance writer Timothy Ng from Sydney, Australia. He is genuinely passionate about helping people compare credit cards and helping them through researching to find the best credit card.
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