Dave Ramsey, the renowned financial expert, author and speaker who helps people get out of debt, describes debt-free people as wise, responsible and willing to make sacrifices. They know that budget cuts are temporary and necessary, and they’re willing to sacrifice now to live a debt-free life later. If you want to live without debt, start by following the simple strategies outlined below. It won’t always be easy, but it’ll be worth it.
Stick to a Budget
Following a realistic budget is crucial. An organized and comprehensive budget gives you a deeper understanding of how you are using your money, how to save for a goal and where you need to make changes to improve your financial health. A successful budget should:
- Be simple and easy to follow
- Track your spending
- Stick to a realistic plan
- Be flexible, as your financial situation is contingent
- Have a long-term focus
CNN.com offers detailed advice about creating and sticking to a budget.
Follow the Snowball Plan
Ramsey developed this plan to give debtors motivation as they pay off their debt. This simple method asks that you start paying down your smallest account balances first, and then work your way through to your larger debt balances (except your mortgage). You’ll continue to make payments on all your debts, but put as much extra as you can toward the smallest one each month. When the account with the smallest balance is paid off, put that account’s monthly payment toward the next higher balance, and make the extra payments on that one until it too is paid off. Work this way down your list. Dave Ramsey refers to this as the “debt snowball plan.”
Get Help Paying off Credit Cards
Before you head to a consumer debt consolidation company, talk to your local credit union or personal banker. Your bank may be willing to give you a lower cost credit card to pay off your cards with higher interest rates.
Similarly, call your credit card companies and ask them to lower your interest rates. They may be willing to do so, and the worst they can say is no.
Another option: Raise the cash to pay down or off your credit cards. If you receive payments from an annuity or structured settlement, you may be able to sell your future payments for a lump sum that you can use to lower or eliminate your debt load.
A Note About Debt Consolidation Programs
Be careful with this. It is a quick fix, but if you don’t have a plan to address your spending habits, you may just accumulate the same debt again quickly. A lower interest rate and monthly payment may be offset by a longer repayment term, which works against debt-relief goals.
Developing a plan to be debt-free and sticking to it is the goal of debt-free people, and it takes patience, responsibility, and sacrifice. But the end game is being free and clear of debt and having control over your finances, rather than the other way around.