Being debt free may seem like a pipe dream for many people but the truth is that with some hard work and iron willpower, you could become debt free by following the steps below.
The following article offers a step by step guide to becoming debt free.
Step 1 – Acceptance of the Problem
As with all problems, the first step towards beating it is to admit that you actually have a problem in the first place.
Whilst burying your head in the sand and leaving bills and bank statements unopened may result in blissful ignorance, it will not solve any of your problems.
Facing the problem head on is the only way to stop your debts from spiralling out of control.
Step 2 – Coming up with a Plan
Coming up with a workable plan at the outset is a crucial step in repaying debt. Having a realistic and achievable plan will help to provide focus throughout your financial journey.
Your plan should include a budget which will factor in ALL incoming and outgoing money and must be realistic! Wishful thinking and leaving items out of your budget will not start you off on the right foot.
Step 3 – Work Out Your Priorities
Once you have worked out your budget, the next step is to prioritise your repayments. Precedence should always be given to essential living expenses such as mortgage/rent, council tax etc, followed by utility bills and loans.
Luxury items such as nights out and new clothes will have to drop to the bottom of the list unfortunately.
Step 4 – Decide Where You Can Cut Back
This ties in nearly with step 3 and if you are 100% serious about clearing your debts, you will have to make cutbacks in order to do so.
Little things such as taking a packed lunch to work rather than going to the pub or sandwich shop, car pooling when going to work etc can make a hugely positive difference to your finances over time.
Even if only for a while, cutting back on any non-essentials can free up additional cash which can be used to repay debts earlier than previously possible.
Step 5 – Make Sure You Make Repayments on Time
Repaying everything that you owe is going to be hard enough as it is without adding to the total amount unnecessarily.
Each time you miss a repayment, you will face some type of charge or fee. Therefore ensuring your bills are repaid via Direct Debit or Standing Order wherever possible is vitally important because it removes the possibility of forgetting to make the required payments.
Step 6 – Resist the Temptation to Borrow More
Unless you are thinking of turning to a specialist broker such as www.solution-loans.co.uk for debt consolidation loan to bring debts under control, turning to a loan can actually make things worse rather than better.
If your financial situation has resulted in your credit rating taking a significant hit, you may find that banks and building societies are highly unlikely to grant any loan applications anyway.
Step 7 – Put your Savings Towards your Debts
Although building savings always helps to build up comfort levels, it is important to put everything possible towards paying off debts as quickly as possible. By putting as much money as possible towards paying off your debts each month (be sure to check that you are allowed to make higher repayments than specified) you’ll be in a position to clear your debts much sooner than was previously possible and using savings towards this can be very helpful. The point here is that you are almost certainly paying a higher rate of interest on your debts than you are earning on your savings.
Step 8 – Don’t Give Up!
If you have managed to get this far, you are well on the way towards taking control of your finances. However, it only takes a slip to have things heading back to the dire situation from which you are trying to escape.
To avoid this happening, make sure that you keep on top of things to make sure that you reach your ultimate goal of clearing your debt completely. If you feel as though you need a little impartial advice to help you along the way, contacting a free advice agency such as the Citizens Advice Bureau.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read more about Amanda Gillam