Thousands of families in America, struggle everyday to meet their daily needs with the paycheck they bring. Each family may have different situation. But the bottom line problem remains the same. That can be summarized as follows:

  • Significant amount of debt accumulated and growing.
  • Credit card payments growing uncontrollably.
  • Not enough income to pay for expenses or to pay the outstanding debt.
  • Heavy reliance on credit cards to pay for sudden/emergency expenses.

Everyone hates that kind of life, where there are always "few days left at the end of the money"! All of us would like to lead a debt free life where we earn enough to cover our expenses, enjoy life, save for the future and give some to the needy. Getting there is simple; but it may not be easy. Based on where you are now, it may take significant short term sacrifice and extra effort to clean up the mess.

If you are sick and tired of being in debt and trying to make both ends meet month after month, make up your mind now! Convince yourself that a short term struggle is worth for a long term comfort in your financial life. If you decided to lead a debt free life, then read on further. This article will walk you through a clear, step by step action plan to adjust your life style, pay off your debt, start saving and live a debt free life forever.

The journey from a financial mess to the freedom of life takes lot of discipline and determination. So, first you need to have an action plan. Once entire family agrees with the plan, that becomes the guiding light in your journey towards financial freedom.

The Debt Free Life Action Plan

The plan consists of two parts. The first part is all about getting out of the mess and the second part is about staying out of the mess.

Part I: Eliminate Outstanding Debt

The biggest challenge for the families striving to lead a debt free life is their current load of heavy debt. It could be medical emergencies, job loss, unexpected expense or just financial irresponsibility, the families have large credit card bills to pay off. These can quickly grow exponentially and become unmanageable in short time. The first thing in the action plan should be to bring them under control.

Here is how to do it:

  • List all your credit card debt in the order of their balance
  • Start making only minimum payments on all of the credit cards
  • Make extra payments on the smallest debt and pay it off ASAP
  • Once smallest debt is gone, attack the next smallest and knock it off with same spirit. Continue this until you clear all your debt.
You may wonder why one has to pay the smallest first and not the one with highest interest. The reason is simple. Clearing debt is more of an emotional game than a mathematical one. It is important to clear some credit cards and get a confidence that it can be done. Hence start with smallest first.

When you aggressively work on paying off your debt, it is equally important to support that effort with some adjustment to your life style. As money management guru Dave Ramsey puts it "You should be willing to live like no one else to live like NO ONE else later!"

Here are some of the things you should do while you work on your debt.

Stop using credit cards

This is very important. In most cases extensive use of credit cards is the one that pulls people into the debt circle. It allows them to spend the money they don't have or don't make. Single rule of thumb for debt free life is to spend less than you make, or make more than you spend. So, stop getting into the trap again and again. Pay cash for everything and don't buy anything unless you have money available to pay for that.

Control your expenses

Controlling your expenses is key to become debt free. Lot of times we don't even know where the money goes every month. Start creating a monthly budget and plan all your monthly expenses ahead. This will avoid unnecessary and uncontrolled spending. Religiously follow your budget and you will see how much you can save every month. Direct all your savings towards paying off the debt.

Sell unwanted stuff

Overtime, you could have accumulated lot of stuff, many of them which you never used or don't use anymore. You may have some expensive items such as high end car with large monthly payments etc. Sell them. Yes, I am saying, sell them. You have to live a minimalisitc life in order to pay of the debt that is constantly biting you. Arrange for a garage sale or sell some items on Ebay/Craigslist etc. You will be surprised how much money that can bring in! Put that money on your journey towards debt free life.

For example, if you sell your $35,000.00 car and buy a $3000.00 car for use until you become debt free, you can get rid of large monthly payments and use that money to pay some other debt.

Earn some extra cash

While you are working on clearing you debt, it is always good to add extra power with some additional job. Regardless of education level, today's world offers some or other opportunity to earn some extra cash for everyone. Use that opportunity to make some extra bucks towards your debt repayment.

Cut your expenses

Cut unnecessary expenses like expensive vacations, regular eat outs etc. Yes, you all deserve some break, candle light dinner and vacation. But just hold on to the temptations temporarily while you are working towards your goal of debt free life. You will have all the time in the world to enjoy them once you have no debt. I assure you, you will enjoy them much more once you are debt free.

Part II: Living a Debt Free Life

Getting out of debt with lot of effort and extra work is a one time thing. But, living debt free is really all about life style change. Once you know how to get there, you should also know how to stay there without falling into debt trap again. Here are some tips to live a debt free life.

Keep the habit of monthly budget even after you become debt free. This will allow you to track and control your spending.

Pay cash for everything you buy. This will avoid any surprise payments, later pulling you back to debt. Do not use credit cards to make purchases. Credit cards are notorious in pushing people back to debt.

There will always be some big ticket items you would like to have. A nice car, big screen TV or a cruise vacation. Whatever it is, start accumulating the money and buy it once you have the money to pay for it. Don't ever borrow again.

Enjoy your life. Debt free life doesn't mean you count every penny and save. Instead, you just watch your spending and make sure it doesn't exceed your earning.

Give generously. Once you have enough for your expenses and fund your savings, keep some money aside for charity. Giving to the needy people is always a good karma.