Spring is in the air. Most people use the first blooms of the season as a signal to begin the process of spring cleaning. Out with the old to make room for the new. The same thought process should be applied to your finances. Take the time to give yourself a money makeover and tidy up your financial life by shedding lingering debt.
Here are the steps to do it:
An important part of getting and keeping your finances in shape and eliminating debt is organizing them. Make a list of outstanding consumer debts like credit cards, car loans, student loans and personal loans. Write down the minimum payment for each debt and calculate how long it would take you to pay off the debt making only the minimum payment.
Once you have your debts organized, it’s time to evaluate your budget.
Make a list of all your non-consumer bills for the month, things like utilities, cable, groceries, pet expenses, gas and transportation, internet, cellphone, gym membership and even NetFlix. Once you have everything written down and sorted out, it’s time to play a game of what if.
Look at the total of what you owe and figure out how much of your budget is being consumed by consumer debt. If it’s over 30%, you need to seriously commit to bringing that percentage down.
Next, calculate how much you could save in six months if you had no consumer debt. What if you had half of your current debt? How would it change your life if your total consumer debt was zero?
Lastly, look at all of the nonessential things that are eating away at your money, such as dining out, grooming or needless shopping. Pick one or two of those categories and see how much you could save if you eliminated that expense. The goal of this exercise is for you to see where your money is going and take responsibility for it. If you changed just a few key things, you could eliminate your debt in no time and change your financial future.
Now that you have gone through sorting through your finances and playing what if, it’s time to start ridding yourself of the unnecessary financial weight. The easiest way to do this is by using the debt snowball method.
With the debt snowball you simply list your debts from largest to smallest. Then you aggressively work to pay off the debt with the lowest balance first, while paying the minimum payments on the others. Once you’ve paid off the first debt, you move to the next smaller debt. Rinse and Repeat!
If you have committed to doing the things outlined above, it is imperative that you also plan to do something fun. You need to pause form time to time during the debt repayment process to celebrate how far you’ve come. It should be something you enjoy and can pay for with cash. Take a day trip somewhere. Treat yourself to a nice, modestly priced pair of shoes, get your hair done or spend the day at a reasonably priced spa. Try not to look at this pause as a waste of money. The goal is to practice spending in a controlled manner on things that have meaning to you and most importantly that you can afford.
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