One of the repercussions of modern day consumerism and many years of economic growth is that many people got used to living a flamboyant lifestyle which their income really did not support and hence the good old credit card and bank borrowings became their best friends.
The Result: many are now facing insurmountable amounts of debt which is incessantly growing, and they have no quick and easy fix. They are in a DEBT TRAP always scratching to find the cash to live day-to-day and pay essential bills … because of high repayments on their home, car, the gadgets they purchased, etc.
If you have found yourself in this position and are struggling to pay off your debts, then you already know it’s a horrible situation to be in and that you have to do something to get things right!
Your goal has to be to stop how you have been handling your money and turn things around so that instead of incurring further debt, you are working on building wealth.
Transforming your debt into wealth requires patience, prudent and rational planning, determination and discipline.
The following are simple steps which you need to apply immediately if you want to achieve a stable, less stressful financial position:
Create An Emergency Fund: This is a savings account where you should deposit a portion of your regular income. You may need to establish a new budgeting regime to achieve this. Alternatively, you can use this account for depositing any income you earn from any secondary income streams you have or plan to establish – e.g. selling things online. When the extra money starts to come in, don’t spend it recklessly extra money. Instead, put it directly into your new savings account – and leave it there!
Focus On Your High Interest Debt: List all of your debts by interest rate in descending order. Start paying off your high interest debts first and when you have paid the debt on top of the list then focus on paying the next prioritized debt. Take heed of any statements you receive (e.g. credit card) so that you are always tracking your progress.
Become Frugal – And Avoid Temptation: You do not need to keep up with the neighbors or have the latest gadgets so do not include them in your budget. If you become very disciplined in this respect for 3 to 4 months, then you will find that the process will become second nature and you will be able to continue the process indefinitely. When you do need something, then pay for it with cash, not on your credit card.
Concentrate On Your Mortgage Payment: Always pay your mortgage amount monthly and avoid at all costs in getting into arrears in this area. The last thing you want is to place yourself in a position where your home / property is placed in foreclosure! If you stay on top of your obligations here, this won’t happen and, as the property market turns around as it eventually will, then you have a strong bankable asset. If you can make mortgage payments in advance, then do so as this will minimize the long term interest you will need to pay.
Invest in Your Retirement: As you accumulate funds, invest money in your retirement account and make diversified investments. You can invest as much as you want in 401K, 403b, SEPP and pension plans or the alternative Roth IRA. With stock market and even business investments, always invest only what you can afford to lose. If that is $5,000, then that is all you should invest.
Invest in Your Personal And Kids Education: There are many “education” savings plans available which allow you to start planning for the future in this area. With your personal education, make this a priority as the job market is changing daily and those with current skills stand the best chance of securing work. Investing in these areas is more important investing in life insurance plans.
Seek Input And Direction From Professional Financial Advisers: They are assisting people every day in structuring their financial affairs correctly and therefore can help you get on the right track in areas which you may not fully understand.
The above simple steps will help you transform your debt into wealth … provided you are patient, undertake prudent and rational planning, determined and disciplined!