The path to financial freedom can be realistically attained through action planning. The solution to a debt problem varies for each individual’s circumstance; however you can learn how to calculate the best method to pay off debt with financial planning and debt organization. A good start in this action plan is to find ways to spend less and earn more. Calculate the amount of your debt. Gather all of your bills, including personal loans, student loans, credit cards, automobile loans, medical bills, mortgages and taxes. This information is important to know before you begin a debt elimination program. Write down the balances, and terms and conditions on each account that you have.
Cut back on spending. Spend money only on things that are necessities so that you can put the extra money into paying down debt every month. For example: saving an extra $10 per day in the course of a year would amount to $3,600 extra in additional savings. Consider any alternate ways to save on big items things, such as cars, a child’s private school and yearly vacation expenses, or you might even consider moving into a smaller house to save on your mortgage. Some more ways to eliminate debt are to cut back on gas and restaurant costs by carpooling to work and bringing a brown bag lunch to work. It is harder to take control of your finances when you don’t find alternative ways to save money. Use grocery coupons and swap items with family and friends instead of buying new to save even more.
Prioritize your bills. Figure out what the order of importance of each bill has and apply the extra reserved savings each month to the most important. Create a ranking system by dividing the balance of a credit card by the minimum payment required. Pay the credit card with the lowest number first, and pay the remaining credit cards with the minimum payment required. Remember that by just paying the minimum payment each month, you will be paying off the amount borrowed many times over for years. Credit card companies charge over the limit, late, and annual fees, in addition to interest rate charges, which make matters worse. The goal is to eliminate the number of credit cards rather than start with the highest interest rate. Never close the account once it’s paid off because it will affect the debt to income ratio which that determines your credit score. Call credit card companies and ask for lower interest rates, even if you have to make numerous phone calls or speak with a supervisor.
Create a chart visual. A chart on all expenses could be read in a visual illustration ranking expenses according to importance such as: 50 percent mortgage, 20 percent utilities, 10 percent transportation, and 20 percent everything else. If for instance you see that you are spending too much on eating out, prepare meals at home. In order to better visualize how much money is spent daily, put away credit cards and use cash. If you decide to use credit cards, only buy things that can be paid off at the end of the month.
Earn extra money. Start a second job or ask for a raise at your current job. Ask for higher prices for your services rendered whenever you find it appropriate. If children in the household can work, ask them to contribute to the household income. Walk around your house to find household items to sell online , or hold garage sales to increase your income.