Living debt free seems like a dream to most people, but by creating a plan to break the cycle of debt and of course sticking to the plan, means it’s no longer a dream, it’s a goal!

Too many people in the western world are living in a cycle of debt, whereby they get into debt, pay it off, or pay off a large portion of their debt, to only be enticed into falling back into debt shortly after.  The real tragedy is that most of these people can’t break out of the debt cycle, which breeds stress, financial anxiety and feelings of hopelessness.

Not all debt is bad. Debt to purchase income-producing assets is a valuable and often the only way to acquire such assets.  The debt that’s bad is the debt such as credit card debt, car loans and personal unsecured loans. To add insult to injury, often this bad debt has higher interest rate charges.

It is possible to break out of the debt cycle and pay off your ‘bad’ debt so you can start to live debt free. I  did it, so you can too. Here are my tips for sorting out your finances so that you can live debt free.

Why?

Facing your debt problem head-on is key to sorting out your debt. You do this by examining how you got into debt in the first place. If you skip this debt, you may get of debt but you won’t break the cycle and you’ll end up getting back into debt.

Spend some time looking back at the items you have purchased on credit, and ask yourself why, did you need the items at that time. Dig deep, and if you like to journal then this is a tool to help you get to the bottom of your spending habits.

Face Your Fear

There are too many people who have no idea the exact amount of the debt they are in. It’s not difficult to work out, just open your mail / download your statements if you have only have online access. Create a list of your debts, who you owe money to and how much the balance is. Once you have this list, add up the balances.  That’s it, you’ve faced the fear and know the extent of your debt situation.

Create a Budget

Budgets aren’t just for businesses, a household budget is an invaluable tool. To many, the word ‘budget’ conjures up notions of restrictions in spending. It doesn’t have to be like this, although if you have debt that needs to be paid off then a little restriction on non-essentials will help you pay off the debt more quickly.

A budget is just a way to help you manage your spending, saving and is a key component to achieving your goals. Living debt free is a fabulous goal to be heading for.

Pay off Your Debt

Devise a plan to pay off your debt, paying off as much as you can afford over and above the minimum amounts each month. Your budget will let you know how much you can afford to pay each month. If you earn extra money, get a pay rise, then use the extra money to pay off your debt.

Cash is King

Try using cash only for a while, it helps stop you adding to your debt. Cut up your current credit cards, and try using a prepaid card instead for buying things online. Living within your means is key, and you don’t need credit facilities to do this.

Other People

Don’t try to keep up with the Joneses, they are probably in more debt than you. Whether they have debt or not, if they judge you for not keeping up, then they aren’t the kind of people you want to be associated with.  Your goal of living debt free is far more important.