Seven Steps to a Debt-free Living

What better way for you to realize your financial goals than making that single most important step – eliminating your debt!

Just a decade ago, some of us might have watched that short-lived TV game show called “Debt” which entertained audiences with a simple premise: Get out of debt!

The game starts with a negative dollar amount (as if the players are in a debt). The amount ranges from negative $50 to negative $250. Contenders answered questions in typical game-show fashion. If they give a correct answer, the game-master reduced their debt based on the value of that question. The winner advanced to the bonus round, where they have to make a final decision: whether to Stop playing, erase all debt and keep the amount won in the first two rounds, OR, "Bet Your Debt"—a single-question, double-or-nothing gamble.

Guess which option most contestants selected?

You got it.

More than just an entertainment for us viewers, this game show reflects what we might be ignoring in real life. Many families have been locked in this similar game of "Bet Your Debt." And for some, its been going on for years.... Maybe they've used credit cards to indulge their desires, neglected to save for emergencies or purchased a way-too-expensive dream house. The consequences of compulsive or impulsive spending? There’s nothing more to disagree.

Is your family feeling the strain and stress of being in the bondage of debt? If it is, then its never too late to choose "Get Out of Debt" instead of "Bet Your Debt." The following are advice that would definitely help you stop playing games with your finances. These are easy steps, why? Because they are preventive means. Most of us know it but are just too lazy, ignorant or uncourageous to accept the fact that the possibility of being buried in debt is never next to impossible. It can happen to you no matter how wealthy you may be.

Well, to all you brave people out there (or unless you want to be called coward) who want freedom from debt, here are seven steps that can help you start down the path of becoming debt free.

1. It all starts by writing down a plan

A written plan is an absolute necessity to prevent debt from settling in. However, the success of this plan depends on your family doing two things: creating an itemized list of all your expenses, in their order of importance. And two, classifying your needs, wants and desires.

Here is how we differentiate the three:

Needs – What is deemed as life’s basic necessities. Food, clothing, employment, home, medical coverage all fall into this category.
Wants – These include making choices about the quality of goods we consume: dress clothes versus work clothes, steak versus hamburger, a new car versus a bus ride.
Desires – These are the goods and choices we may not be essential to our survival, safety or well-being.

2. Identify Essentials for Daily Living

Eliminate items on your “things to buy” list that are just unnecessary. Look for services around the home that can be done without outside cost. If you hire a cleaning lady, roll up your sleeves and scrub the kitchen yourself, or, a better and fun way to do general cleaning would be to involve family members to work as a team. Try to learn the handyman skills yourself, don’t be idle, make good use of your time. You can tile and grout your floors, build a deck or paint the walls to save costs.

3. Think Before Buying

If your family is already soaked in debt, learn to evaluate every purchase. Ask yourself: Is it a necessity? Have I assessed if it is a need, a want, or a desire? Does the buy reflect my ethics? Should I continue to subscribe to magazines or belong to movie clubs while I know that I owe others? Is this the best possible buy I can have, or am I purchasing only because I have this credit card? Is it a highly depreciative item? Am I buying something that will devalue quickly? (Expensive gadgets, boats, and sports cars fall into this category.) Does it require high-cost maintenance?

4. Cut Up the Credit Cards

If you are in debt from the misuse of credit cards, stop – totally stop – using it. Cut up the cards and mail them back to their respective companies and ask them not to send you any more. Include in your letter the plan for paying that credit card debt. This time on, commit yourself to buying solely on cash basis.

Have new attitude in your daily spending. After all, you'll have to sacrifice some of the wants and desires in life to break free from debt; otherwise, you will continue to borrow and only get deeper into it.

5. Don’t do Leverage

When in debt, avoid the use of what is called leverage. Leverage is the ability to control a large asset with a relatively small amount of invested capital. For example, if you bought a piece of property that cost $10,000 and required $1,000 down, that represents a nine-to-one lever. You have invested 10 percent of your money and borrowed 90 percent.

Borrowing money to invest is not a good turn. Because when you borrow money from a bank to invest, the repayment of the bank loan is dependent on the investment making a profit. But if a profit is not made and the investor can't make the payments, he loses the investment and at the same time, owes the bank. The result? Financial bondage.

6. Bank it up in the piggy

It’s never too late to practice saving money. Ironically, its time for us adults to practice what we have been teaching our kids. If you do save money on a regular basis, you’ll just be surprised of how much you have saved and yet you have gone through the whole year with everything you need or want.

Try the attitude, despite how small the amount. Eventually, it will develop discipline. This does not mean you should store up a large amount of money while failing to pay your creditors, but one of the best habits a young couple can develop is to start saving a small amount on a regular basis.

Families living above the poverty level have the capability to save money, but many fail to do so because of the misnomer that small amounts can't make any difference.


7. Stuck? Don’t think twice of getting help


Make an option to borrow from family or friends. This makes sense if they can lend you money at a lower rate of interest. But never forget to keep a valid record of the transactions. Adhere to your agreement. Consider this option only if you are willing to make regular payments until fulfilled.

If you have poor credit or are falling behind, there are a number of local credit counseling agencies that can help. They can help you negotiate lower interest rates and provide strategies that can consolidate all your payments into one easy payment. You may experience the relief of knowing that you have spoken with an accredited financial counselor who understands the financial pressures that you are on.

Make that change. Do something while you still can. There’s more to life than just handing out the greens just to have something that will make you happy.



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