How to be debt free the simple way
Imagine a life where there were no repayments on your home
Where there was no Mastercard, Visa, Amex and Diner’s card panic at the end of every month. I can’t imagine that becoming debt-free is easy, but it is a major goal of my life.
Here are the ten steps I’m going to take.
1. Budget
I sound like a broken record, don’t I? I’m sorry to harp, but an effective budget is the key to financial security and a debt-free existence. We have released the budgetspreadsheet by Savings Guide, should you want to track your expenses in an orderly (cyber) fashion. If not, an exercise book will probably cut it.
2. Understand and attack
Prioritise your debts. As Paul Clitheroe suggests here, comparing your liabilities to your income is a good starting point to improving your finances and understanding what you’ll need to do to become debt free.
3. Pay it back in kind
We know that financial gurus differ on this point, and the choice is yours. You can pay off your debt first or bolster your emergency fund. Personally, I like the idea of chipping away at them both simultaneously. It may take longer, but it makes me feel more secure. The most important thing is that you repay over the monthly repayments and make it punctual- late fees will end up costing you.
4. Curtail your credit cards
Again, this is a personal decision. As Man vs. Debt elaborates, choosing whether or not to cancel your credit cards must be a process of weighing pros and cons. Cancelling your credit cards will hurt your credit rating.
Personally, that doesn’t affect me much as I’ve sworn off the things, but it might be something you want to think about.
5. Pay cash
Yep, cash. Even for big purchases, like cars. If I can get some good habits going on now, I think they’ll stand me in good stead in the years to come. There’s nothing wrong with saving up and paying cash. In fact, you can bargain your little heart out if you’re paying cash for a lot of items.
6. Do not submit…
… to store cards. I’ve never had one, and hopefully I never will. Store cards are an effective way to spend a lot more money than the item is worth. Yes we know they can help with interest free terms etc, but trust us – they will eat you alive if you are not super careful.
7. Pay off your student loans
It’s only a little debt, and the interest is low, so it’s easy to forget about your student loan. That said, it remains a debt and one you’re paying interest on, so why not work at repaying it above the compulsory repayments?
8. Bolster your emergency fund
At this point, you might be a lucky little vegemite and living debt free. This is the time to add some money to your emergency fund.
9. Means test your house hunt
America, and now Australia, is full of empty houses that people couldn’t afford to make repayments on. I’m not planning on that being me.
When I buy a house, I would hope to save a reasonable proportion of the cost and ensure repayments are feasible and can be achieved quickly.
10. Save
A good piece of advice is to invest every raise into your savings. It’s the best kind of saving- the kind where you don’t even notice. That way you can build yourself up a nice little nest egg.
Done! How do you plan to be debt free?
We want some hard hitting comments below!
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