The Power Of Getting Out Of Debt

Debt seems unavoidable when you live in the United States but don’t just accept debt as a normal part of life, get out of debt. When you come to the United States, the roads are lined with almost all new cars, good looking houses, well dressed people and an overall seemingly elite ambiance – no wonder people think that money grows on trees in America. The truth is that this ambiance and lifestyle is financed by debt. According to creditcards.com, in 2014 33% of average Americans own 1 to 2 credit cards. There are several benefits to getting out of debt and there are several basic principles and resources that can help you get out of debt.

Becoming debt free does not only come with lots of benefits, it is a realistic goal. Living debt free provides financial flexibility, peace of mind, financial freedom, confidence and it provides a sense security. Debt could be discouraging but there are simple tools and habit that can help. There is an overwhelming amount of material on personal finance and personal debt management, however they all point to the same principles. Below are 3 common principles that can be easily applied to your personal finance situation:

Get out of debt or avoid debt:

To get out of debt list out your debt from smallest to largest and start paying them off in that order. This is a better approach than trying to pay off the loan with the largest interest rate. If you pay off a small debt, it’s a quick win that will give you momentum to tackle another debt.

There is the principle of bad vs. good debt but at the end of the day debt is debt. So you are better off paying for what you can afford. For large purchases like a home, financial expert Dave Ramsey suggests:

  • Before you even think about buying a home make sure you are completely debt free and have a savings with emergency fund.
  • Have at least 10% down payment
  • Opt for a 15yr mortgage instead of a 30yr mortgage
  • Strive to keep the house payment at 25% of your take home pay
  • Make a budget and stick to it:

Make a budget:

When it comes to making a budget or doing any kind of financial analysis people get intimidated. There are several budgeting apps out there, there is Microsoft Excel and there is the good ole paper and pen method. To make a budget:

  1. List out your total income
  2. List out all your expenses line by line
  3. Subtract the total of your expenses from your total income. If your expenses are more than your income find ways to make cuts to your expenses DO NOT see the solution as making more money. Dave Ramsey puts it best: “Don’t try to out earn your stupidity”Budget

Save Money:

No matter how much money you make, put away 10% and gradually increase the % as time goes on. There are several interest yielding options out there, search and see which one is best for you. For starters, just start putting some money away.

Daveramsey.com has invaluable tools on how to get out of debt and stay out of debt. The website also includes testimonials of people that have successfully paid off all their debt and are living happy, debt free lives. Don’t plan to start good financial planning after you become super rich, start now.

By Lola Fajemirokun

Debt

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