Getting Started on the Path to Debt-Free Living

Where do you stand?

Before changing your lifestyle to get out of debt, you must first know where you stand. Write down everything you owe – to whom, how much, and at what interest rate. This could very well be the most eye-opening list you’ll ever make, but it’s integral to help you plan your attack.

Good debt vs. bad debt

Some debts are an inescapable part of life. You need to recognize which debts are necessary (and, in some cases, beneficial). Even when we must carry debt, there are some basic debt management rules that will help minimize problems:

• Avoid double-digit debt, such as loans and credit cards that charge annual interest of 10% or more. Getting a return on the borrowed money that beats this cost is extremely difficult and unlikely.
• Good debts, like some mortgages and student loans, combine two positive factors:
  1. a relatively low, tax-adjusted interest rate
  2. the opportunity to invest in something that will grow in value over time.
• Don’t follow bankers’ advice for “acceptable” levels of debt. They want to maximize their income by keeping you in just enough debt to contiue paying them interest, but not far in debt that you lose your shirt. So set your own rules.

Now that you’ve identified and recorded all of your debt, and separated the bad from the good, it’s time to make your plan. Preparation is essential. Your plan should be focused – if you try to tackle everything simultaneously you will only get frustrated and risk falling back into your old debt-amassing habits. Make sure to read the other articles on this site to learn how you can go on the offensive and get out of debt.

Also, don’t forget to plan for the unexpected, such as job loss, disability or family illness. And don’t forget the obligations you have to must-pay debts and bills (food, rent, etc.).

Knowing where you stand financially is the first step to successfully getting out of debt. Now get busy and start paying down your debt!

Debt Resources

• Lexington Law Firm
• Instant Online Debt Consolidation - Free Quote!