Debt Free

Debt Free seems to be the new buzzword for the millennia. While this word sounds great (Debt Free) most cannot figure out how to achieve this lofty goal. First things first, you must be realistic in your goal to becoming debt free. If you owe $80,000 dollars in credit card debt and as with most consumers the interest rate is higher than a few years ago, let’s say 15% and your total annual income is $50,000 do not expect to be debt free in one year. Assuming you have no mortgage, car or school loans-one year may be a possibility.

Make a Realistic Plan

Now, to become debt free you must take a long hard look at your incoming cash flow (income) and the dreaded outflow (expenses). Add your fixed expenses together, i.e. your home, car, insurance and other items with a set monthly payment. The sum of these items is the dollar amount that must be set aside monthly to make sure these obligations are taken care of. If not, becoming debt free will be much harder than imagined. Next, we look at the variable cost such as gas, water, electricity etc. Take the most recent billing statements for your variable cost and add them together. Keep in mind that with items such as gas, water and electricity the monthly amount owed may vary greatly depending on the time of the year due to consumption patterns. With this in mind, we need to add an extra 20% to the total of all variable costs. This will give us a cushion when performing our calculations. Remember, the goal is to become debt free. Lastly, we look at the credit card debt. While this can technically be called a variable expense for the purpose of becoming debt free we will call it simply, credit card debt. This area of expense is usually the biggest hurdle to overcome when working on a debt free plan. In this scenario there are 5 credit cards with APR’s ranging from 13% to 21%. First, look at the amount owed on each card and the respective interest rate associated with each. You will probably have some cards with a lower interest rate and a high balance or vice-versa. What you will need to do is start paying down the credit card with the highest interest rate first. You still have to pay the other cards, but the one with the highest interest rate is the target at the moment. This process will need to continue until all credit cards are paid off. Do not forget that while you are paying down the cards the other expenses (fixed and variable) must be taken care of, or the notion of becoming debt free is just that, a notion. Yes, it will take some time to become debt free, but remember in most cases it took some time to acquire the debt.

If you choose these steps to become debt free bear in mind that it will take sacrifices, but with determination and the right fortitude living a life debt free can be a reality sooner than later.

Debt Management | Consumer Credit Counseling | Consumer Credit Counseling

Serving North America, California. Including but not limited to: Alameda County, Alameda , Albany , Berkeley , Castro Valley , Dublin , Emeryville , Fremont , Hayward Kensington Livermore Newark Oakland Oakland Piedmont Pleasanton San Leandro Union City

Debt Free