Budget and Finances: 3 Steps to a Debt Free Life

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by HJ on January 2nd, 2012 | 1 Comment »

The New Year is a time to let go of old habits and embrace a healthier life. But some things—like debt—don't disappear at the stroke of midnight. The New Year is a chance to change your attitude towards debt and start your path towards the goal of being debt-free life.

3 Steps to a Debt Free Life

The following are three steps to become debt free:

Step One: Take Control

Like all resolutions, the first step is the hardest. For me, I needed to change my relationship to debt. I chose to not let debt control me. Instead, I took control of the debt. This meant that I needed to understand it—where it came from and what I was going to do about it.

This meant really taking stock of my finances. One by one, I looked through my billing history and found the interest rates were for all my accounts. Some of them—like old school loans—were low, fixed rates, while others—like credit cards—were really high. I decided to tackle the high interest rates first. Using an online debt calculator, I figured out how long it would take me to pay off the balance with the highest interest rate. I decided to focus on that balance first. Using a piece of paper, I made a plan for paying down the debt, one account at a time. I created a plan which put me in control. Those who are in dire need of cash can always opt for loans. Just make sure to read reviews first, like that Sunny Loans review, for instance.

Step Two: Take Action

Many banks now offer automatic bill pay. I signed up for this service so each month a set amount was paid directly from my paycheck towards the debt. I also made sure that I was paying the minimum payments for the rest of my accounts automatically, so I didn’t get hit with late fees or missed payment penalties. Knowing this chunk of money was going towards debt each month meant I had a lot less to spend so I had to cut my expenses.

I was surprised how much I could save with a few changes: dropping cable TV, not eating out as often, changing my cell phone plan, etc. While these changes hurt at first (I really missed Comedy Central!), I focused on the positive. I was taking control of my finances and simplifying my life in the process.

Step Three: Celebrate Change

Paying down debt involves huge changes like giving up present luxuries for a long-off future reward. I know that I’ll be paying my debt for many years. But I still find ways to celebrate change and little victories. In March, I will have paid off my first high-interest balance and I’ve decided to celebrate. I won't be celebrating by buying myself new shoes or going out for dinner—instead, I’m going to plant a garden. Paying down debt takes patience and so does waiting for plants to grow. But if I put in a little time and energy, I know that in time it will be worth it.

Are you debt free? What are you doing to get out of debt and live debt free?

Photo courtesy of flickr.

When not watching free Comedy Central reruns online, HJ lives and works in the pacific northwest and writes the blog HJ's Time (http://hmcnaron.blogspot.com/). HJ likes playing contests, saving money, finding good deals, and being generally thrifty.