How to get out of debt and save money
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You CAN Get Out of Debt!
Getting out of debt is not that difficult if you approach it on a one-step-at-a-time basis. Do the first thing, then the next, and pretty soon you will find that not only are you saving money, but you are coming closer to your goals of being debt free.
There are several, logical steps to take in order to get out of debt. If you follow them, carefully, one at a time you will eventually be out of debt and living in control of your money rather than your money being in control of you. But you have to be honest with yourself about where you are. No more hiding the bills without looking at them, or buying something because you have been "good for a whole week. "
Ready?
Step One:Honesty
Get out all of your bills. You need to take an inventory of where you are right now.
Write down and add up the value of all you own; house, cars, stocks, insurance-everything. Now add up the value of all you owe- mortgage, credit cards, loans-everything.Subtract what you owe from the total value of what you own. The result is your net worth.
Let's say your posessions add up to 300,000. but you owe 200,000. on your house and 50,000. in credit card debt. Your net worth would be 50,000.00. This means if you sold everything you had you would still have 50,000.00 to your name.
On a piece of paper write down all of your income. Your salary, your blogging money, adsense, stock dividends, eBay money-whatever it is and where ever it comes form account for it.
Now, list all of your expenses. House, insurance, electric, water, gas, car payment, medical insurance, groceries...whatever expenses you have on a monthly basis- list them. If you have yearly expenses divide them by 12 and add the total in as a monthly expense. If you pay 1200.00 a year property tax then add it as 100. per month.
Do not add expenses like eating out because you may need to give that up for awhile.
Compare your income to your out-go. If you have more coming in than going out you are a step ahead, congratulations!
Now make a realistic budget, listing all expenses that you have to pay every month. Stick to your budget, it is the road-map to being financially free.
Step Two: A Plan
The first thing that needs to be done is you need to set up a savings account. You need to have at least 1,000.00 to 1,500.00 in savings to cover emergencies. Eventually you want to have 3-6 months salary in there but for now shoot for 1,000.00.
Retire the credit cards.
You are not going ot use them again. Ever. You will not need them. You are going ot handle money so well you can pay cash for most things and use one credit card for online purchases that you can pay off at the end of the first billing period. You have cash in savings to cover emergencies.
You are going to pay the minimum on your credit card bills and put as much as you can into savings until you have 1,000.00. This money is not for a vacation and it is not for a down payment on a nicer car. This money is for emergencies. If your water heater breaks, or your transmission goes out you are going to withdraw enough to pay for the repair with cash. Once you withdraw the money you have to concentrate on getting it back in there are soon as possible.
As soon as you have 1,000.00 in the bank stop putting anything in savings. Use that extra money to apply to your smallest credit card balance. Pay it off. Now, Take the money you were paying on that credit card and apply it to the next largest balance. Pay that one off. Repeat, using the funds you are freeing up to pay off the next card.
If, at any time during htis process you have to use the money from savings go back to making all minimum payments until your savings account is built back up, and then return to your debt reduction plan.
Change Your Lifestyle
Why do you need the newest car, the newest electronics, the designer outfits? Learn to buy smart. Spend money on small amounts of quality items that will last rather than small amounts of money on large amounts of junk that will be gone. Teach your kids to enjoy simplicity and learn to enjoy it yourself. Rethink what things are really essential in your life.Rather than using electricity and spending money on video games what if your family sat down to a bowl of popcorn and a game of Monopoly?
Consider buying used cars rather than new. In fact most of what you buy new can be bought used for a fraction of the cost. My kids wear designer clothing but it comes form thrift shops and garage sales. I collect antiques but I find them in those same places, as well as by the trash on trash day. Make it a game to be frugal.
Being frugal is not the same as being stingy and cheap and don't get the two confused. Being frugal gives freedom, being stingy and cheap makes you a slave every bit as much as debt does.
Build Wealth
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Negative Income
Negative Income means that you make less money than you spend. Your bills are more than your income.
You can deal with this in a couple of ways.
1. Find a second income- Sometimes working a second job for a short period of time is enough to get you over the hump.
2. Get rid of stuff- eBay your extra stuff, or have a garage sale. Take a look around at what you have and see if you can sell it. If so use the money to cut your debt.
3. Talk to your creditors and work out a repayment plan. They are usually willing to do this and can cut your monthly payment so you can afford to pay your bills.
During your repayment phase you are going to try not to spend money that you don't need to spend. Don't grab a hamburger at McDonalds, stop getting your nails done, hold off on the new dress. Like losing weight, losing debt just feels good.
Once You Are OUt of Debt-
Don't go back there. Like over eating or smoking, debt is a trap.
Once you have your debt paid off use the money you were paying on credit cards to build up a savings account and financial security. Invest in real estate, stocks, or whatever stikes your fancy but do it responsibly and with good research. Pay cash and never buy what you can't afford today. Save up for it.
You will be free, and no matter what the world economy does you will be secure.
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informative,keep it up.
Wise hub, talks sense!
I do it 'the richest man in babylon' style:
Save 10% and use 20% for repaying debts.
Thanks!
Oh dear.. can you come here and help me..although honestly I can do it..you have given me many new ideas... am doing it anyway my way...but your advise is very helpful. can you advise me on how to get rid of Him (my ex of 33 years) and the bills he walked away from for me to pay??? It is very hard..I have been to lawyers...changed my will..he says "you can have everything" whoopie..he has so much #>*>>~t left in his workshop... but as you say i can sell it on Ebay..wish I had more experience here..at my age i received a computer from a childs parents that i have cared for, for 6 years....one and a half years ago,,well actually last Christmas and so i am not to cool on this thing yet...don't mean to be crying on your shoulder...G-Ma :O)
MrM & Aman- thanks again
Kenny- that is good as well. Anything that you do consistantly will work eventually
G-ma- you can get people to help you list things on eBay...there may even be a place near you. try googling for eBay listing agents or ebay help. You can do it!
YOU BET I CAN..YOU WANNNA BET SUGAR? Gma :O)
Great step-by-step!!
It's also helpful for a lot of people to have a web of support, be it through family, friends, or a group like Debters Anonymous.
Good ideas especially doing this before christmas expenditures. Definitely cut up ccards. Credit cards can be very useful, IF you treat them right. Book something up and pay it back before the due time. Completely pay it off I mean. Then reuse and repay. That way you will not incure any extra charges.
Good hub
Yes, credit cards can be used right, Eileen!
First of all you must have a good credit history for every thing. Renting an apartment or buying a condo, house, getting a job and many other places you do need credit history in the western countries. Rest of the world that's not the case. Also when Credit is used wisely can be like a good friend on rainy days. I always use credit cards to pay for every thing because it is convenient than carrying lots of cash. When i get the credit card statement I pay off in full every month I do not carry forward credit card balance. I only buy what I can afford to pay for it that is the wise way to use credit. Some people who don't have credit cards or they messed up with their credit already. Now they are borrowing from friends and family. Credit card problem is an individual problem for the person not responsible or have no control over their spending habbits.
G-ma- :)
helena- very true, support is important in anything!
Eileen- good idea!
Mr. N- true..but most people do not use them that way, which is why there are so many people going bankrupt. Once you realize you have a problem with debt you really can't go back.
Great hub!
Well done alot of good ideas : )
This is great!!! Wow!! I was amazed when I started reading this article. I am also developing information about Debt Consolidation Help: Become Debt Free. I think it's very important to get word out there and keep everyone's hopes alive. Together we can do this!
Excellent!! This is informative and good advice!! I believe that every body will like your idea and will like getting away from their debts. You did a good job.
nice hub with lots of great information that's really beneficial to thos ewho are having problems with their credits. Having a credit card can be a good thing if we dont abuse it.
great hub , I really agree with you, that if you want to get out of debt you must change your life style , after all its your current life style that got you in the mess in the first place.
Great job on your hub, good ideas & tips to get people working to be free of debt. It is so important, especially now during this economic recession for people to be encouraged to help themselves, even if it seems difficult.
Great advice. I have to wait 3 more weeks to get any $ unless something sells on craigslist or ebay! It's tough, I thought I had a way to make some extra money, but her business has dried up in this recession. I didn't even get the stimulus money because I owed the IRS. I owed them because I lost my job and had to live on my pension and savings because my exhusband had not paid alimony for three years. I wonder if I will ever recover.
Great ideas on how to reduce debt. A lot of what you write makes perfect sense.
George,
This is really a good advice! Thanks a lot for sharing this. You have given some examples that make sense.
A great article on how to get out of debt.
Small steps lead to big results. Our savings do act as saviors for our future expense and a good debt consolidation company can work wonders in paying off the already piled up debt.
great ideas that are real true advice -- esp. the honesty part!
This is a great resource for taking inventory and seeing where you are at. It definitely is a step in the right direction to be honest with yourself and take inventory of your debts and budget.
Great post with a lot of good information. I think the hardest step is the first on, honesty. It is tough to accept, but the only real way to change.
Hi, Thank you for the useful information. In all honesty, I was one of those laid off from work last year that is why I landed on a home based job (which is good). I was left with loans and credit card bills to pay. My present income is not enough to suffice the children's tuition fee and day to day expenses. I was behind with monthly payments with my loans. I honestly don't know where to pick myself. Of course, I am not loosing all hope. I am taking things one step at a time and with the help of your hub, I will be debt free eventually.
Some great tips there (:
Great stuff. Debt is no fun for anyone. Thanks for helping keep me out of debt.
Thank you for such useful information.In order to be in financial security, we have to control our money and not to be slave by unnecessary needs;rather than to choose branded products, instead we better have to be smart in selecting the quality items that usable. The key to get in financial freedom is on how smart we manage it.
I have more credit card debt than I'd like to but I just can't seem to bring myself to get rid of the cards. The reason is because I get air miles with them that I can use for travel. This is how I justify keeping the cards because I can usually earn enough in points to get myself a free flight or two per year. I don't leave the debt on my cards but rather transfer it to my lower interest line of credit. Some day I want to get rid of the cards though because they're just too easy to use!
Very wise information, in fact that is the information I was raised on... somehow it took me to till I was 30 to say "Oh my gosh dad. all those things you taught me about money were right!" - thank you for the hub, oh and to the person who mentioned The Richest Man in Babylon - that is an awesome book.
I agree that, at least in theory, getting out of debt is not that difficult. We can find many tips for getting out of debt on the internet. But when it comes to actually doing it, this requires a serious commitment on our part.
We will need more than following logical steps to get out of debt. We will be living in control of our money rather than our money being in control of us by finding a second income, selling stuff we don't need and negotiating debt settlement with creditors. But most importantly, change our spending habits during debt repayments and once our debts are paid off.
This seems so easy. I am going to try it. definatley. I should be able to get out of debt and save some money.
Great article indeed
Great advice. Linking this to my bills article and voting it Up and Useful.
These are great ideas - veryuseful advice.
MrMarmalade 4 years ago
That makes a lot of good sense
Thank you