The first thing that people need to understand is that indebtedness does not happen suddenly. It is the result of several irrational, hastily taken financial decisions. And by careful control over spending, this burden of debt cannot only be reduced, but avoided altogether in the future.
Ways to Being Debt Free
The first step is to understand the extent of your indebtedness. One of the best tools to calculate the extent of debt is to use the debt-to-income ratio. I have discussed how to calculate a debt-to-income ratio in a previous article. If this percentage is above 43%, the problem of debt is overbearing and you ought to seek professional debt management and credit counseling for debt management. There are several debt reduction companies that provide great debt management services.
The two primary ways of getting out of debt fast, are firstly to scale down the current level of debt and secondly, to look for other low-interest sources of financing. The first of these debt relief options is the most important one and you must try as hard as you can to reduce current debt. Current debt can be downsized by paying off all your old debts systematically. For that you will have to either cut your spending or increase your income. You have to stop buying items that your don't really need and utilize your hard-earned income only for daily necessities and for servicing old debts. To free yourself of debt, you have to start with credit card bills. Credit cards are one of the most innocuous looking forms of debt, but once you look at the bills and outstanding amounts, you'll know how much of this debt was quite avoidable. Make a resolution to stop using credit cards altogether for a while and focus on debt consolidation. Mortgage payments and loan payments are fairly long term, so it will be quite difficult to cut the debt on those items, but the outstanding credit card payments have to be paid off before all the others.
You might have to lead a period of austerity for a while till your debt ratio reaches a manageable level. Cut back on buying items which you don't really need. Like I said before, use your income only for the purchase of necessities. It may sound like a pretty raw deal right now, but it will help you resolve debt issues fast! If you don't have a habit of saving a part of your income, this is a pretty good time to start. Savings are certainly a good way to finance expensive purchases than credit cards. Remember, savings build assets, credit cards build liabilities. So now you can clearly see which is the better option! Once you build a good amount of savings, credit cards will seem very redundant.
The other way to do this is to build your credit. If you continue to regularly pay off all your debts, your credit score will improve. And if you are in a favorable credit score range, you can avail financing at significantly lower interest rates (up to 2% lower). And once your credit score improves and you get credit at lower interest rates, you may consider cutting loose and using new debt to kill old debt. But this requires a high level of self-control, so that you use your new-found credibility favorably. Make sure that you use your new debt responsibly.
The problem with using debt is that you may get used to it. So if you think that you are unable to curb the temptation to misuse debt, you should seek debt management programs and debt consolidation programs for debt assistance. So use your money carefully!
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