Thursday, November 4, 2010

Top 10 money tips to become debt free


One of the purposes of this blog is to help myself to learn more about money in order to help me to become debt free and, hopefully, financially independent.

Being debt free is almost a dream for me at moment, with the power of compounding interest working against me I keep on paying my credit card debt every month and it doesn’t seem to go down no matter what I do.

This post is a result of my own research around the internet on 10 strategies to help me to become debt free.

#1 Stop using the credit card

If you are liking me you have a bit of credit card debt hanging around. No matter what you do you don’t seem to get ahead those monthly payments. Every month interest is credited back into the account and part of your effort to reduce the balance on the card is absorbed by the interest.

The first step towards getting rid of credit card debt and being debt free is to stop using those cards.

Put them away, cut them up if necessary, do whatever it takes for you to stop using those cards.

Some of us are in a situation that you use your credit card to pay for your monthly bills. This means that you probably don’t have enough cash flow to pay for your living expenses and then you use the credit card to supplement your income.

If you are in the situation above then you need to get on top of your cash flow and ensure that you spend less than you earn. Keep reading to find out how to get on top of you cash flow.

The following article discusses how credit card debt can be avoided:

#2 Get on top of your cash flow by spending less than you earn

In order to get rid of your debt you need a debt management plan. You need to take a hard look at your cash flow and come up with a debt management plan to ensure that you spend less than what you earn.

If you continue to spend more than what you earn  you will never be able to get out of debt, it is as simple as debt.

The are two ways to take control of your cash flow, cutting the expenses or increasing your income. The next tip relates to reducing your expenses.

With regards to increasing your income, I believe that the best way to impact your financial life in the long term is to have streams of passive income. The tip #4 relates to passive income.

To learn more about the importance of cash flow in personal finances have a look at the following articles:

#3 Reduce your expenses

The key to financial independence is to manage your cash flow. You need to ensure that you spend less than what you earn. The first step to achieve a positive cash flow is to reduce your expenses.

If you don’t have a budget it is a good idea to create one. Once you have it you can have a look at your expenses item by item and find out where you can save.

Take a look at my article about creating a budget, it contains detailed, step by step instruction on how to setup and use a budget to help you to manage your personal finances:

#4 Passive income, the key to financial success

Saving alone is not enough to have a positive cash flow. In order to take control of your finances you need to increase your income. My favourite way to increase income is also the hardest one, passive income.

Passive income is income that you earn without working for it. Once the passive income stream is step all you need to so is to sit back and watch the money come in.

Passive income to me is the key to achieving financial independence.

The following articles will helps you to understand passive income and will provide you with some tips on how to generate passive income:

#5 Debt consolidation

Debt consolidation is another debt management strategy that you can employ to get rid of debt. You do have to be careful before consolidating your debt though.

When you are pressured by debt you may get emotional and look for easy ways to get out of debt. Organisations that offer debt consolidation loans are very clever in how they offer their products.  They present the information in such a way that it is very convincing and attractive if you a buried in debt.

Before consolidating your debt take a hard look at how much interest you are paying on your debt and compare it with the interest you will pay if you get the new loan (don’t forget to include fees in your calculation).

I have often come across debt consolidation loans with interest rates so high that it would not be advantageous to consolidate my debt.

Do research debt consolidation loan, do your homework and make sure the numbers make sense before you sign any papers.

#6 Home equity debt consolidation. Refinance you mortgage to pay off the debt

Refinancing your mortgage to pay off your unsecured debt makes sense. Interest rates on mortgages are usually much lower than the interest rates you pay on unsecured debts such as credit card.

If you do have enough equity in your home loan consider refinancing your mortgage and use some of your equity to pay off your unsecured debt.

Don’t forget that once you refinance your property and take the money, your mortgage payments will increase. Make sure that you plan ahead so you can afford your mortgage payments in the short and long terms.

#7 EBay is your friend

Take a good look around your house, you can probably find many items laying around that you don’t need. Consider selling them on eBay and use the profits to reduce your debt, every little bit helps

#8 Get an extra job

The fastest way to increase your income is to get a second job. It is very hard to find sustainable, alternative sources of income. If you do want to fast track your debt payments then consider getting a second job to boost your income and pay off the debt a little faster

#9 Make money through blogging

Blogging can be a very enjoyable way of increasing your income. These days you don’t need to be a computer programmer to have your own blog.

I did not write a single line of computer code to have this blog up and running and although it does not generate a significant income at the moment it is helping me to learn more about personal finances and, with the benefit of time, has the potential to put some money in my pocket.

Blogging can be fun because you can choose whatever topic you like. It is fun to write about the things you love. It is a way of making a little income doing doing something that you like.

I will finish this section with a little warning. It takes time and persistence to get a good amount of traffic into your blog so if you decide to start one make sure you stay motivated and stick with it.

#10 Setting goals

Getting rid of debt can be  very long process during which you may loose focus and motivation.

Goal setting is a strategy that can help you to remain motivated as you achieve small goals that one day will help you to get rid of your debt.

The following links refer to some very interesting articles regarding goal setting:

Stay motivated and take action

One of the most important tips I can give you is to stay motivated.

Being in debt is very frustrating, you work very hard and you you sometimes have the feeling that you are not getting anywhere. It is very important to remain motivated, focus on your goals and believe that you can achieve your objectives.

One of the most influential books to me, and in fact the book that started me on the road to financial independence, is the The Science of Getting Rich. one of the most valuable advices I got from the book was to believe in myself, focus on my goals and to remain motivated.

You can get rid of your debt if you remain motivated and take action. Stop taking about the things you want to do and do something. You are the only one that can do something to take control of your personal finances.

No comments:

Post a Comment