Carrying debt - especially in today's economy - is simply not a good financial plan.
When you don't have any debt, you may be surprised at how little income you actually require to support yourself or your family. But when you are carrying debt month to month, it feels impossible to get ahead.
Getting out of debt sometimes requires radical measures. This guide is not for the faint of heart, but if you're serious about attacking your debt situation, here are three strategies to eliminate debt from your life.
As long as you're paying down your credit cards month to month, it won't turn in to a big issue. However, mortgaged homes and leased automobiles are generally not great purchase decisions.
The realty market is fickle, and unless you're a fortune teller, how do you know your house is actually going to be worth more when you're ready to sell it? Furthermore, do you actually have a plan as to when you're planning on selling?
If you've lived in a house before, you already know that there are a variety of peripheral expenses that can come along with it. Property taxes. Maintenance. Appliances. The list goes on.
A mortgage is almost always paid off over the long-term. Unless you have a solid financial plan in place to pay it off, you will find yourself running behind. A Mortgage is an ongoing expense, which means you have to make sure you're making enough money to cover it every month.
But how do you know you're not going to lose your job? How do you know you're not going to get sick or get injured? It's important to plan for the worst case scenarios.
Automobiles, on the other hand, are merely depreciating assets. They're not really assets at all, because they don't make you any money. The more you drive them, the less they're worth.
Streamlining isn't popular. However, if you know that you're only going to cut back over the short term, it's a worthwhile sacrifice. Most of us don't need leased BMWs or 2,000 square foot homes. Things are nice, but you can live without them.
If you can get out from under the pressures of debt by selling your home or your car, cutting cable or Netflix subscriptions, it's a worthwhile sacrifice.
2. Increase Your Income
It probably seems obvious, but increasing your income - even temporarily - can help you achieve your goal of being debt free. There are basically three different ways of increasing your income:
Get another Job
Getting another job involves leveraging your downtime, and is the least effective way of increasing your income over the long haul. There are only so many hours you can work in a day, and a lot of flexible part-time work tends not to pay very well. You also have to consider logistics: how much longer will you be on the road, and how that will affect gas & maintenance as well as food costs.
If you're just trying to get out of debt and you don't have any other financial goals, then getting another job is arguably one of the better ways to go.
Invest Your Money
Investing your money mostly involves leveraging your money rather than your time. While it is a more effective way of increasing your earnings compared to boosting the number of hours you work, if you're in debt, you probably don't have a lot of money to invest in the first place. Plus, you tend not to see huge returns on your investments in the short term. Investing well also requires specialized knowledge.
Start a Business
Starting a business initially requires significant time and effort, and in some cases money. Many people think that starting a business is costly and risky, and has no guarantees around it.
That may be true in some cases, but there have never been more low-risk opportunities available than now. Consider blogging or affiliate marketing. Direct selling or network marketing is also generally low risk and often provides ongoing training.
If you have long-term financial goals that go beyond getting debt free, then business is the way to go. With proper guidance and support, it is arguably the best way to get out of debt as well.
3. Get on a Budget
We've all heard that we should be on a budget, but most of us are not. Why is that?
Quite simply - unless you love numbers - it's tedious and boring. Additionally, our emotions are also more responsible for our spending habits than we realize, because human decisions tend not to be made purely on logic.
So, rather than working everything out to the last penny, first make a list of all of your expenses and use nice round figures. It's easier to get a picture of what everything costs when you know the approximate value of each item.
Your estimates should be on the high side; that way, if you don't spend as much money on a particular item as anticipated, you'll be able to allocate the remainder towards more important things, like debt.
Also, don't be afraid to make changes as you go. For example, if you blow your budget on food one month and it's throwing everything else off, then make an effort to eat less and/or buy cheaper food the following month.
Finally, become a problem solver and a solution seeker. You will almost always encounter challenges when you're trying to do something worthwhile, like getting out of debt. Many obstacles can be overcome if you will simply look for possibilities and set your mind to them.