Debt Freedom Is Closer Than You Might Think

If you find yourself in debt and living paycheck to paycheck, it’s past time to turn your finances around.

Depending on the seriousness of your financial situation, it may take some time to get back on track.

But don’t get discouraged, every little step you apply now will help you improve your financial situation in the long run.

First, address the behaviors that put you into this situation.

Did you lose your job? Did the breadwinner of the family pass away, or did a family health or property emergency drain away from your nest egg?

If those types of things happen, it’s OK and emotionally understandable.

But if you are impulse shopping and purchasing items you don’t need, well, that is different.

Do you buy things to boost your mood when you are down? Are you trying to keep up with the Joneses? These are bad habits that keep you trapped in debt and prevent you from building wealth.

Face it, credit card debt is no game. Credit card companies are loan sharks, borrowing money at nearly zero and lending it to you at very high interest rates.

They hook you with teaser rates then change the terms, such as reducing your limits and charging higher rates on late payments, among other factors.

Ignoring your debt can be the worst thing you do. It hurts you by ensuring you pay higher rates and miss better borrowing opportunities on homes or cars.

It also will hurt you when you apply for a job. Yes, employers today do look at your credit rating and financial habits to determine if you are a person of good character. A CareerBuilder survey found that 72 percent of employers conduct background checks on all the employees they hire.

Of those cases, 29 percent check credit reports.

Getting out, forever

Instead of ignoring your debt, deal with it.

Negotiate with the credit card lender or collection agencies. They are willing to recover a percentage of what you owe versus nothing.

If you are inexperienced with this process you might want to pick up a book about the subject or even hire an experienced attorney in the field who can represent you, if you have substantial debt and are considering bankruptcy.

Know the difference between unsecured debt like credit cards and secured debt like homes and cars.

The biggest mistake you can make is consolidating, swapping unsecured debt for secured debt. Secured debt offers lower interest rates because there is collateral to back the loan.

Transferring higher-rate loans over to collateral loans, such as a home equity line of credit, puts additional risk on the roof over your head.

Instead, it’s time to start following a budget and paying down on the higher interest rate loans. By doing so, you will have more dollars in your pocket over time to help eliminate your debt.

One approach to financial planning is calculating your net worth, which amounts to your assets less your liabilities.

First, write down all your assets, including bank accounts, stocks, mutual funds, retirement account assets, and the value of real estate.

Likewise, list your liabilities, including credit card debt and other loans. Subtract your liabilities from your assets to figure your net worth.

Cutting back

Once you have established your current financial situation, the next step is to determine is examining your monthly income and expenses.

Look at your personal spending over the last few months or even in the same month last year to get an indication of what you usually spend in each category. Then, subtract your expenses from your income.

If the amount is zero or negative, aim to cut back on expenses and increase your rate of savings.

Besides putting money away from each paycheck, think of ways to eliminate potential waste that can help you reduce your debt instead of increasing it.

For example, stop eating fast food, stop the coffee-shop visits, look for better deals at the grocery store, skip a night or weekend out with friends and instead invite them over for a BBQ or Netflix.

Go through your home and start selling things on eBay, Craigslist, Facebook Marketplace or OfferUp to help raise some additional money on items you no longer have an interest in.

Lastly, you really might want to investigate working some additional overtime hours or taking on a part-time second job to help earn some additional cash.

Do not be ashamed or embarrassed. You will be quite surprised today how many people are working one or two additional jobs besides their full-time employment.

Whatever you choose to do, the biggest thing is to change your lifestyle, learn to live within your means and find other ways to make you happy when depressed, instead of shopping.