When will you be debt free?

Getting out of debt and staying out of debt is simple. All it takes is spending less than you earn, but although the solution is simple, putting it into practice is hard for many people. The first step is assessing where you are right now.

Assessing Where You Are

Businesses regularly calculate key ratios that indicate their financial health, and so should you. Two of the most basic personal finance calculations are your net worth, which is a snapshot of your current financial situation and tells you what you're worth (or not as the case may be) your Debt to Income Ratio, which is your total debt payments compared to how much money you earn and tells you if you're carrying too much debt.

1. Get the cheapest debt possible
Get ruthless with the debt you already have. In these days of low cost credit cards, with a little bit of research you can find the lowest offers available that you are eligible for and take advantage of them. While you are paying off your debt, make sure that you are paying the lowest interest charges you can find on the debt you still have.

2. Maximum not minimum
Whatever else you do, this is the single biggest thing you can do to get yourself out of debt. Your scheduled repayment structure (worked out by the credit company and each one is different), is set up in favour of the credit company. It optimises your payments, for their benefit. You must turn this around and optimise your payments for your own benefit. The simple way to do this is to add a consistent extra amount to your monthly minimum payment on one debt at a time.

3. Re-consolidate, Restructure, Regret
Reconsolidating can be a useful tool in extreme cases as part of an overall debt repayment plan that is structured in your favour. By itself, it can be a double-edged sword that helps you look like you are getting on top of your debt. It may temporarily get you out of some of your debt, but it does nothing to keep you out of it. If you take out a personal loan to consolidate your existing debt, make sure it's low interest and keep the repayment term as low as possible, pay it off as fast as you can.

4. Stop doing it
None of the tips will do you any good if you continue to add to your debt.

5. Be Honest
With yourself first. Tell yourself the truth about your finances. Be clear about your numbers. Know your financial facts. And be honest with others. Don’t try to represent yourself as wealthier than you are.

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