9 Steps to Financial Freedom by Reducing Debt
Friday, March 13th, 2009
Lisa Phillips
There’s nothing more unrealistic then to have a financial expert advise everyone to stop getting hair cuts, don’t buy a cup of coffee, cut off your cable, and the one that really boils my blood is “don’t eat out”. It’s just not realistic for everyone. In fact, it’s like telling an overweight person to “just stop eating”. It’s not going to happen, at least not overnight. While this is not bad advice, there are other ways, more realistic, that will lead you to financial freedom. Start by gradual change because you are more likely to stick with it and not feel deprived.
(1) Create a budget
The first step to financial freedom is creating a budget you can stick with. Begin with the household necessities such as mortgage, rent, utilities, car payment and insurance. These are your fixed expenses. Next, tackle your variable costs such as groceries, cell phone, credit card bills, entertainment and clothing. Once you have these items budgeted take a look at what is left and then create a reserved budget for dining out, vacations, hair stylists and pampering needs. Be realistic and set reasonable constraints on these items.
(2) Rebuild your credit scores
The cost of having bad credit is immeasurable. If you are going to be financially free you must improve your credit rating. It makes a huge difference in the amount of money you save by having a good credit score. The bottom line is that lower interest rates equal money saved. For instance, if you have a $400,000 mortgage at a 6.00% (30-year fixed interest rate) your monthly payment will be $2,398. That same $400,000 mortgage at a 9.00% (30-year fixed interest rate) will be a monthly payment of $3,218. That’s a difference of about $820 a month! The same rules apply with automobile loans, credit cards and other types of bank loans. The better your credit score, the lower your interest rate and the more money you save.
(3) Create a good cushion
You never know when you’ll need money outside of what you have budgeted. Auto repairs, an emergency out of state trip, plumbing problems….you name it….it could happen. The money you save by having a budget and sticking to it should go into a savings account. Having a savings account not only gives you peace of mind but also keeps you from incurring more debt when an emergency occurs.
Instead of relying on your credit card or creating more debt when an emergency occurs, you can use your cushion. Just as you have a budget plan, have a savings plan also. Pay yourself first. Start with at least 10% of your income. You may even want to include it in your fixed expenses budget as a line item. The funny thing about saving money is that it can be addictive. The more you save and watch your savings grow, the more you want to save. You become accustomed to seeing that money in your savings account increase each month. Start saving today. No more excuses.
(4) Cable T.V.
I know I said it’s not realistic for everyone to just cancel cable and I’m going to stick to my word. However, you can save money on your cable bill by limiting your premium channels and not ordering pay-per-view movies. You can save money each month by having just one premium channel instead of four. Depending on how much you pay for premium and pay-per-view channels, you will save hundreds of dollars each year.
(5) Lower your credit card interest rates
As stated above, the lower your interest rates, the more money you save. Lowering your credit card interest rates could save you hundreds, if not thousands of dollars. Call your credit card company and request a lower rate. Many consumers are intimidated by the thought of requesting a lower rate. Don’t be one of those consumers. You’d be surprised at the results. Your chances are good if you have been a customer for some time, you are not at your credit limit and you have been making timely payments.
Visit www.rebuildcreditscores.com/Lower_Your_Interest_Rates.html to view a short video on how easy it can be to get your credit card interest rates lowered.
(6) Never pay just the minimum payment due
Making minimum payments to your creditors will not lead you to financial freedom. It may even help you dig your way deeper into debt. Always pay as much as you can afford. Credit card companies compound interest daily. Any additional money toward your debt reduces the principal balance as well as the amount of interest you will pay over time.
(7) Switch banks
Monthly bank and ATM fees can really add up. When using the ATM you may not think about the $2.00 or $3.00 charge for ATM withdrawals. But if you use the ATM a couple times a week not to mention if your spouse does the same thing, ATM fees can be astronomical. Consider switching to a bank that does not charge ATM withdrawal fees. Many banks offer free checking and at most credit unions, you can get free checking with interest, with no minimum balance.
(8) Balance your check book and avoid overdraft fees
Not surprisingly, many of us do not balance our checkbook. We feel the automated phone teller or online banking is enough to keep us informed about our finances. It’s not. Good old fashion basic math skills can save you a lot of money. Bank overdraft fees can range from $22 to $35. Overdraft fees are through the roof and there is no sign of them decreasing. Balancing your checkbook whenever you transact business using your checking account, i.e. (writing checks, ATM withdrawals, bank service fees, etc.), will save you money in the long run.
(9) Earn extra income
Are you due for a raise? Negotiate a good raise if you are due for one and save that extra money. If a raise is not in the cards take on an extra job. Extra income can be earned by taking on a weekend or part-time job. With the Internet many opportunities exist for home-based businesses without much start-up costs. Take a look at 25 business ideas to start those creative juices flowing. With today’s unstable economy it is wise to have multiple streams of income. For more tips on eliminating debt visit: www.rebuildcreditscores.com/Eliminate_Your_Debt.html
There’s nothing more unrealistic then to have a financial expert advise everyone to stop getting hair cuts, don’t buy a cup of coffee, cut off your cable, and the one that really boils my blood is “don’t eat out”. It’s just not realistic for everyone. In fact, it’s like telling an overweight person to “just stop eating”. It’s not going to happen, at least not overnight. While this is not bad advice, there are other ways, more realistic, that will lead you to financial freedom. Start by gradual change because you are more likely to stick with it and not feel deprived.
(1) Create a budget
The first step to financial freedom is creating a budget you can stick with. Begin with the household necessities such as mortgage, rent, utilities, car payment and insurance. These are your fixed expenses. Next, tackle your variable costs such as groceries, cell phone, credit card bills, entertainment and clothing. Once you have these items budgeted take a look at what is left and then create a reserved budget for dining out, vacations, hair stylists and pampering needs. Be realistic and set reasonable constraints on these items.
(2) Rebuild your credit scores
The cost of having bad credit is immeasurable. If you are going to be financially free you must improve your credit rating. It makes a huge difference in the amount of money you save by having a good credit score. The bottom line is that lower interest rates equal money saved. For instance, if you have a $400,000 mortgage at a 6.00% (30-year fixed interest rate) your monthly payment will be $2,398. That same $400,000 mortgage at a 9.00% (30-year fixed interest rate) will be a monthly payment of $3,218. That’s a difference of about $820 a month! The same rules apply with automobile loans, credit cards and other types of bank loans. The better your credit score, the lower your interest rate and the more money you save.
(3) Create a good cushion
You never know when you’ll need money outside of what you have budgeted. Auto repairs, an emergency out of state trip, plumbing problems….you name it….it could happen. The money you save by having a budget and sticking to it should go into a savings account. Having a savings account not only gives you peace of mind but also keeps you from incurring more debt when an emergency occurs.
Instead of relying on your credit card or creating more debt when an emergency occurs, you can use your cushion. Just as you have a budget plan, have a savings plan also. Pay yourself first. Start with at least 10% of your income. You may even want to include it in your fixed expenses budget as a line item. The funny thing about saving money is that it can be addictive. The more you save and watch your savings grow, the more you want to save. You become accustomed to seeing that money in your savings account increase each month. Start saving today. No more excuses.
(4) Cable T.V.
I know I said it’s not realistic for everyone to just cancel cable and I’m going to stick to my word. However, you can save money on your cable bill by limiting your premium channels and not ordering pay-per-view movies. You can save money each month by having just one premium channel instead of four. Depending on how much you pay for premium and pay-per-view channels, you will save hundreds of dollars each year.
(5) Lower your credit card interest rates
As stated above, the lower your interest rates, the more money you save. Lowering your credit card interest rates could save you hundreds, if not thousands of dollars. Call your credit card company and request a lower rate. Many consumers are intimidated by the thought of requesting a lower rate. Don’t be one of those consumers. You’d be surprised at the results. Your chances are good if you have been a customer for some time, you are not at your credit limit and you have been making timely payments.
Visit www.rebuildcreditscores.com/Lower_Your_Interest_Rates.html to view a short video on how easy it can be to get your credit card interest rates lowered.
(6) Never pay just the minimum payment due
Making minimum payments to your creditors will not lead you to financial freedom. It may even help you dig your way deeper into debt. Always pay as much as you can afford. Credit card companies compound interest daily. Any additional money toward your debt reduces the principal balance as well as the amount of interest you will pay over time.
(7) Switch banks
Monthly bank and ATM fees can really add up. When using the ATM you may not think about the $2.00 or $3.00 charge for ATM withdrawals. But if you use the ATM a couple times a week not to mention if your spouse does the same thing, ATM fees can be astronomical. Consider switching to a bank that does not charge ATM withdrawal fees. Many banks offer free checking and at most credit unions, you can get free checking with interest, with no minimum balance.
(8) Balance your check book and avoid overdraft fees
Not surprisingly, many of us do not balance our checkbook. We feel the automated phone teller or online banking is enough to keep us informed about our finances. It’s not. Good old fashion basic math skills can save you a lot of money. Bank overdraft fees can range from $22 to $35. Overdraft fees are through the roof and there is no sign of them decreasing. Balancing your checkbook whenever you transact business using your checking account, i.e. (writing checks, ATM withdrawals, bank service fees, etc.), will save you money in the long run.
(9) Earn extra income
Are you due for a raise? Negotiate a good raise if you are due for one and save that extra money. If a raise is not in the cards take on an extra job. Extra income can be earned by taking on a weekend or part-time job. With the Internet many opportunities exist for home-based businesses without much start-up costs. Take a look at 25 business ideas to start those creative juices flowing. With today’s unstable economy it is wise to have multiple streams of income. For more tips on eliminating debt visit: www.rebuildcreditscores.com/Eliminate_Your_Debt.html
