Debt Free Living ... Getting in Shape

Debt free living is possible, but it requires a plan and your Debt Repayment Schedule is the center of your plan.

Make your debt repayment plan high priority, especially if you have credit card debt or other types of unsecured debt that are subject to interest rates changes.

Right now interest rates are at an all time low. Once those rates rise (the only cure for high inflation is high interest rates) your payments will rise.

Will you be able to repay those debts with higher - and possible much higher - payments?

Rules to Debt Free Living:

1. Make paying off debt high priority. Little else should be more important.

2. Pay more than the minimum payment towards your credit card debt. It does not require a lot, just more.

3. You must spend less than you make.

Since the beginning on February 22, 2010, the Federal Reserve has required all credit card companies to show on their billing statements the effect of making more than the minimum payment in terms of how much interest you will save and how long it will take to repay your debt.

Now the concept of budgeting begins to be your number #1 tool. Use your budget to find that extra money by reviewing where you are spending it now.

Next, decide what you plan works for you.

There are several ways to approach a plan but here are three:

  • If you are just tired of being in debt and want to dig out and see results as quickly as possible, list your debts from the lowest balance to the highest. Paying off lower balances first may take longer to start being debt free , but seeing the results of accounts being paid off is very satisfying.
  • Do you want to save the most money in the long run? Start your list with the accounts having the highest interest rates first. This approach may take longer to see results as it may take longer to pay off your higher interest rate accounts but over the long run you will save what you would have paid in interest charges.
  • A third approach for using your Debt Repayment Schedule has more to do with your credit score than living debt free. A little understood part of your credit score is called "credit utilization." In a nut shell, it is the amount of credit outstanding compared to your available credit line. If you are trying to improve your credit score, set up your repayments to pay off the credit cards with the highest credit utilization rates first with the goal of paying each one down to 30%. To set this up, you will add another column to your schedule and do the math to determine the credit utilization ratio for each card. Once you have this part of your credit score under control use your debt roll up plan to pay off your debt and start your debt free living.

Debt Free Living Practice and Exercise:

  1. Review your budget, and decide how much more than the minimum payments you can make.
  2. Decide what plan is works best for you.
  3. Now go to paying off debt to see how use a debt roll up plan.

Go back to Make a Budget from Debt Free Living

Go back to Family Budgeting