7 steps to become debt free

Living a debt free life is not unattainable though it is difficult and requires determination, time, patience and discipline. Given below is a run down of 7 steps that will assist you in the journey towards a life that is free of financial worries.

Step 1 - Admit that you are facing problems in managing your debts:
The first step towards debt free life is to come to terms with the fact that your debts have become unmanageable. Leaving bills unpaid and ignoring the problem does nothing to wipe off your existing debts; in fact it only worsens the situation. However, the fact that you're reading this article implies you have already accepted that you are in debt and you're ready to take the next step.

Step 2 - Assess your current financial condition:
Make a list of your debts. Next to the listed debts include the name of the creditor, the total amount you owe, the rate of interest you are being charged and the monthly payment you make towards this debt, if any. It will not only give you a clear picture of your financial standing but will also assist you in choosing an appropriate debt solution. Or else you can also take help from our Debt Income Ratio Calculator.

Step 3 - Prioritize your debts:
The next step is to decide which bills to pay first and which ones you can delay. It is suggested to concentrate on paying off the debts that carry a higher interest rate. You will save more money in the long run by ridding yourself off these expensive loans first, while keeping up the required repayments on the others. While making the repayment remember to pay a little more than the minimum as minimum debt repayments only covers the added interest; it makes no impact on the principal amount.

Step 4 - Create a feasible monthly budget for your expenses:
List all the essential expenses (like food, essential clothes, housing rent, electricity, gasoline, education fees, health expenses etc.) and the non essential expenditures (like spending on restaurants, movies, video games, parlors, gifts, snacks etc.). The non essential expenditures can be completely cut off or lowered substantially till you become debt-free. Even amidst the essential spending, you can look for options that will help you in saving without making any compromises.
Evaluate your monthly balance by subtracting monthly expenses from your monthly income. This will tell you how much money you have at the end of the month so that you can start paying off your debts. Do not forget to keep some money aside for unexpected expenses. As your debt load goes down, you will notice a fall in your interest costs.
A word of caution here: Remember to stay within your budget guidelines.

Step 5 - Say a big NO to any kind of new debt:
As you are in debt up to your eyeballs, adding on a new debt will increase your debt load and will hinder your journey towards a debt free life. You must decide once and for all that you will not add any new debt.

Step 6 - Talk to your creditors:
It is advisable to notify your creditors about the financial hassles you are facing in paying the bills. They may be willing to chalk out a repayment plan for you or renegotiate the loan terms and even temporarily suspend payments.

Step 7 - Seek professional help:
If you are not being able to manage your debts on your own, then you can opt for professional credit counseling. You will be guided by financial experts who will help you in taking a step closer towards debt free life by analyzing your financial status and then sorting out a realistic debt repayment plan for you.