Debt elimination is the goal for many people who have struggled with debt in the past. Managing debt is difficult and credit is readily available and easy to use.
Many People find it tough to resist the temptation of credit. Many adopt the habit of "spend now and pay later". It is easy to do but at some stage you will have to repay the debt and with the interest added. If you have financial goals then you have to cut costs and boost your savings. The first step toward achieving your financial goals is debt elimination.
1. Always spend less than you earn
Spending less than you earn is a golden rule to wealth generation. Learn to budget. Write down what you earn and then write down what you spend. Take out all the items that are unnecessary, but allow yourself some money for a few luxuries. Stick to your budget and pay off your debts.
2. Learn to budget and learn to manage your money and eliminate your debts.
You have to spend less than you earn to truly eliminate debt. Even if you spend exactly the same amount as you earn you will find it very difficult to eliminate your existing debt completely. Remember when you create your budget you will have to allocate some funds for those unexpected events and special occasions, like birthdays and Christmas. Do not borrow money to pay for these occasions.
Now that you are spending less than you earn you can start a savings account and build a nest egg, right?
3. Direct your savings towards debt elimination.
Many people who have trouble with debt are also trying to save and build a nest egg. Before you can really save you must eliminate your debts. If you save money in a savings account you will earn around 6 percent interest. Even if you invest in stocks and shares the average return year-on-year is between 10 & 11 percent. You pay more than that for debt. Interest rates on credit cards and personal loans can be as high as 20 percent or more. Yours saving can easily be eaten by servicing interest on your debts.
If you are keen to eliminate your debts, use your savings to pay your debts. Use lump sum payments to effectively reduce your debts by reducing the principle and thus reduce the interest. Your savings may even clear you of debt. This gives you a clean slate in which to build up your wealth and also you have saved hundreds of dollars a year on interest that you would have paid if you had continued to service that same debt. With this clean slate you can stick to the system of positive cashflow, begin to save money and stay debt free.