Americans carry a large amount of revolving debt, mostly credit cards, and it is a problem when they cannot pay them down, or off. With credit card interest rates and the minimum monthly payments it is designed to keep you paying, and paying for a long time, unless you decide to get out of that cycle. Invariably emergencies come up, that is life. But in order to get out of the rut, you have to make a real lifestyle change and a real effort to do so. And the journey never really ends; it just moves and shifts over time.
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There are a few ways you can break out of this cycle. Planning and understanding the process is the beginning of the path to being debt free.
- Emergency Fund
- Remember it is a Marathon, not a Sprint
- Pick a Way to Do It
- Create a Budget
An emergency fund
This may sound like a luxury and something that only well to do people have, but in reality you should be striving for this goal all the time, starting out an emergency fund is the hardest part really, because it can seem insurmountable. Putting $50, or $100 away each month and forgetting about it is a hard thing to do, and may seem as though you will never be where you can have a comfortable amount but just think, over a year you could have $1,200 in a savings, that is nothing to look down upon. I suggest a bank, where you have no other accounts, and the only way you put money in or get it out is to physically visit the branch, this eliminates your impulse to dig into the account for non emergencies.
It is a Marathon
Paying off your debt is not a short term one time only deal, it will go on forever, and may reoccur over and over again in cycles. Don’t despair. Most people will aspire to be debt free, get there, and then think that it is all over, that is far from the truth, for example, you may have an emergency and you have to use your credit cards again, because you did not have an emergency fund, and the whole process can start over again. So don’t have the mindset that the pay off is some kind of finish line, but only as a small goal in the overall process.
Pick A Way To Do It
There are countless ways to pay off your debt, what I mean is there are many methods. Some say pay off the small ones first, and work towards the larger ones, some say consolidate, and pay off in large chunks, or any other way imaginable, but whatever way that you choose, pick it, and stick with it until that milestone is reached. I personally like the method of paying off small debt first and moving to the larger debt. The small ones will give you the emotional aspect of paying a debt off, while reducing the amount of bills coming in the mail quicker, thereby making the remainder easier to pay off and less stressful.
Create a Budget
You cannot pay off your debt if you do not have a firm grasp of your financial situation, and that requires that you have a budget, it is essential to the pay down of your debt. Here is how you do this, first you take all your take home pay for a two to three month period, add it up and average it out. Then take three months of your bills, add them up and average them out, this will give you a strong idea of what you have on average and what goes out on average. Once you have done this you can figure out what you can set aside to pay debt off, what you can set aside for number one above, your emergency fund, and lastly you can use it to decide which payoff method is right for you.
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These are easy to follow guidelines that are proven to be successful and trusted. You must have a detailed plan and budget in place before you can move on and make the right choices. When you are looking at paying down your debt, you have to attempt to look at it from a math standpoint, and not an emotional one, once you are able to get out of the emotional rut and common traps you will be able to formulate and good, solid payment plan to get out of that debt once and for all, get into a savings mode and create an emergency fund that will give you piece of mind and comfort.