Settle Your Debts and Start Saving Toward Financial Freedom

by Alanna Ritchie on 07/25/2013

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Getting out of debt may seem like a mammoth task to accomplish, but with careful planning, you can do it. Here are some tips to help you pay off your bills quickly:

Begin by assessing your current financial situation. Putting numbers on paper will give you an accurate picture of what you owe. Make a list of all your creditors, the overall amount you to owe each one, as well as the monthly minimum payment and interest rates. You can now gauge which debts are costing you the most in interest and what the total monthly payment would be if you paid all your creditors.

Examine your other expenses. See if you can adjust your budget and free up enough cash to make minimum payments and have savings. If you have an expensive cell phone or cable bill, work with your providers to see if you can get a lower price package or find cheaper alternatives. Watch your favorite shows a week later online at no cost and save money that would normally go straight to your cable provider. Temporarily freeze your gym membership and move your workout routine into the good old outdoors.

By properly budgeting, you can save enough money to build a savings account that functions as an emergency fund. Ideally, shoot to save at least six to eight months of your income. This can protect you in case the unexpected happens and stop the debt cycling from recurring.

Use the Debt Snowball Plan to eliminate your debt. While experts suggest many different strategies for eliminating your debt, one of the most effective is the Debt Snowball Plan. By paying as much as you can to the creditor you owe the least amount of money to and making only the minimum payments to the rest of your creditors. You’ll pay off this smaller debt first allowing you remove a creditor off your list more quickly. This accomplishes two things:

1. It provides you with a sense of accomplishment. When you pay off that first debt, you gain confidence to tackle your next one.

2. It helps you focus on one debt at a time. As stated previously, getting out of debt can be an enormous challenge, therefore, it makes it easier on you to focus on one task at a time.

Break debt down, piece by piece. After you pay off your first debt, continue to use the same principles while tackling the higher debts. Keep reminders like old statements on hand to motivate you. Furthermore, be sure to continue to reassess your finances every few months to keep you focused on the task.

Increase money in your emergency fund. As you free up cash by eliminating debts, take the money that has been going to monthly minimum debt payments and put it in a savings account. Your emergency fund will expand and eventually grow into an account that can be used for going on a dream vacation, buying that new car you’ve longed for, or putting a down payment on a house.

Ultimately, this plan is an excellent way to settle your debts. The principles teach you how to develop sound financial habits that way you can save money and pay off your bills more quickly. As a result, you can feel empowered as you are taking steps toward your financial freedom, which will pay huge dividends for your future.

Alanna Ritchie is a content writer for Debt.org, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.

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