How to become debt-free
Debt levels have been steadily rising over the past few decades, but it’s important to understand that not all debt is bad.
If you use debt to invest in assets that appreciate in value, that is an example of using debt in an intelligent way. On the other hand, using credit to fund discretionary purchases such as shopping or travel expenses can be an area where people fall into trouble.
If you’re finding yourself getting into too much debt through the use of credit cards, there are a few steps you can do to get out of it.
The first place to start dealing with debt is to stop spending more than you can afford. If you are spending money on credit, it’s likely that you are not managing your money that well.
Start putting aside money every week so that when unexpected costs come up, such as your car breaking down, you don’t need to reach for your credit card.
You can’t manage your money effectively if you don’t know where it’s going every week. Most people will only have one or two sources of income, but their list of expenses can be very long.
Start writing down what you spend money on each month and break that down into different categories. There are even apps you can use to help you track your costs.
Pay debts first
Most people get their weekly pay cheque and go out and spend money, leaving their debts to the last minute. You should really be doing this in the opposite order.
Start by paying off all your debts and bills as soon as you receive your pay. Then put some money aside for savings. Then, everything you have left can be spent on your various expenses.
This way you are making yourself save and manage money by only spending what you can afford.
If you have a number of high-interest debts on things like credit cards or unsecured loans, it might be worth speaking to a broker about how you can consolidate your debts.
Debt consolidation works by rolling all of your high-interest debts into one loan with a lower interest rate. This will save you money on interest and makes managing your repayments a lot easier.
Then when you get your pay cheque, you are only paying off one loan. Be sure not to pay with credit in the future.