Thursday, July 10, 2014

The Joy of Debt Freedom

For many people, debt freedom sounds like a nice idea and an impossible reality. Americans as a whole carry trillions of dollars of debt, from car loans to student loans, from home equity to store credit cards. The average American in debt may only have a few thousand dollars of obligations, but each individual source of debt has a required minimum monthly payment amount. The burden on the individual budget really adds up.

Imagine Freedom

The first step for anyone dreaming of escaping from under a mountain of debt is to begin to think differently. Add up the amount of the monthly minimum payment for each debt and see the total amount of money that could be free for other purposes if those debts were completely paid off. With some more complex math it is possible to add up the total amount that will go to interest on each debt over the lifetime of the payments. With these figures clear, it becomes obvious the effect that debt is having on the budget; draining a significant amount of dollars out in required monthly payments, and enriching the bank with thousands of dollars of interest over the life of the debt.
 Know the Budget

For some with lax budgeting and spending habits, the first step may be to focus on precise awareness of exactly where every penny goes. Without exact knowledge of how money is being spent, it is difficult to start to control the flow of cash. With a system as simple as noting down every expenditure and tallying up the total at the end of the month, a wayward spender can begin to at least track all the money going out and assign categories for spending as the rough beginning of a budget that will provide the tools to control money, rather than feeling at the mercy of money's demands.

Find the Extra

For other people who already do a decent job of knowing the budget and sticking to the plan, it is just that the accumulated debt payments are starting to weigh down the available income. With budgeting as a solid habit, and money only spent in accordance with the planned limits for each category, then it is time to look closely at the total figures, and analyzes each category closely, to find some extra cash flow to divert toward debt payment. This step will involve some sacrifices, as most people would rather not cut back on any discretionary spending. With the goal of debt freedom in mind, though, and the motivational factors of a clear picture of the interest going to benefit the bank and the total dollar outlay every month involved to keep up with the debt, it is possible to stay motivated and divert the funds into extra debt payment to begin paying off one debt at a time with extra payments.

Maintain the Commitment

Debt is shockingly easy to acquire for most people. Stores and banks offer low cost introductory rates on credit that make it seem like free money. Once an individual has added up the costs of debt, though, both the monthly budget and over time in the expenses of interest and fees, it becomes easier to resist the lure of more debt. For everyone who has made the effort to work toward debt freedom, there is too much to lose by falling back into the cycle of payments and interest draining out of the budget every month.

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