In today’s tough economic times, debt may feel like just another part of life. Whether you have credit card debt, student loans, or just more than you can handle, a debt diet can help you and your family figure out how to live debt-free in a relatively short period of time.
Be Realistic about Your Debt
The first step in getting your family out of debt using a debt diet plan involves being realistic about the amount of debt you have. The best way to do this involves requesting your free credit report from each of the three major credit bureaus – Equifax, Experian, and Transunion. You’ll get a free report each year at your request, and it is important to check these reports for any discrepancies.
Track Your Spending and Start Saving
The next step involves getting a log and keeping track of everything you spend. You might be surprised to learn just how much that morning latte costs over the course of an entire year. Although $3.00 per day may not seem like much, if you have a coffee every single weekday for a month, that’s $66 a month. Multiply that by 12 months in a year, and that latte really costs $792 a year – money you could be using to pay down credit cards or student debt. Consider bringing your own coffee from home and put that $792 in a savings account, instead.
Create a Monthly Budget
This step is often a bit tricky, but once you have spent some time tracking your spending, it becomes simpler and easier. First, write down your income from all sources – yours, your spouse’s, child support payments, investment dividends, and more – and then write down all of your monthly payments and obligations, including expenditures on things like groceries, clothing, fuel, and even auto maintenance. What’s more, be sure that you include a specific amount of money to save each month, and give this the same level of importance as your utility bills.
If Necessary, Make More Money
If your debt-to-income ratio doesn’t allow for a lot of savings, you may want to consider finding a way to grow your income. If possible, you might want to consider taking a second part-time job, or you could even think about selling off some of your assets that you don’t really need or use. In either case, this provides you with a significant amount of money that you can use to pay down debt.
Pay More than the Minimum
The final step in the debt diet involves making more than the minimum payments each month on everything – your car, your mortgage, your student loans, and all of your credit cards. This ensures that you are paying down more than just the interest and giving yourself ample opportunity to get out of debt. In fact, many consumers find that making two extra payments per year on things like mortgages and auto loans helps them cut down the principle balance much more quickly.
As you can see, getting out of debt takes some research, determination, and hard work. However, like anything else that is difficult at first, it certainly pays off in time. Keep track of your spending, save wherever possible, and build good habits that you can carry with you for a lifetime.