Two Methods to Become Debt Free

Many people are struggling with credit card debt. Unfortunately it doesn’t take much to derail your credit. A few missed or late payments on any credit card or loan can cause creditors to start calling and bring a world of stress into your life. If you are in this situation, here’s two methods on how to get your credit back on track and eliminate credit card debt to become debt free as quickly as possible:

Debt Free Method #1- Pay off highest interest credit card first:

Step #1: List all of your credit cards, including your outstanding balance, your interest rate, the minimum payment percentage and the minimum payment according to your latest statement. Yes, this could be painful and may strike a chord of panic in your chest. Don’t worry. This is the first step to gaining control of your finances and becoming debt free.

Step #2: Once you have that list, highlight or circle the credit card with the highest interest rate. This is the card you’re going to attack first.

Step #3: Add up the minimum payments for all of your cards. This means if you have five credit cards, what minimum balance do you owe on each and what is the total of your minimum balances?
Step #4: Create a personal budget. Yes, this may sound like a scary word, but a personal budget will tell you exactly what you have to spend each month and how much you have to pay off your credit card balances.

Step #5: Pay the minimum balance on each credit card you have EXCEPT the one with the highest percentage rate. On this card you will pay as much as you can on top of the minimum balance. So if your minimum balance is $25, and you’ve budgeted to pay an extra $50 toward your credit card debt, you’ll make a payment of $75.

Step #6: Once your balance is paid off from your highest credit card, move on to the next highest credit card percentage rate. Now you will add the extra $50, plus whatever the minimum was on the card you paid off, to the minimum that is due on the next card. (Example: $50 + $25 + $25 = $100) Continue the process until your debt is paid off.


Debt Free Method #2 - Pay off smallest credit card balance first:

Step #1: List all of your credit cards, including your outstanding balance, your interest rate, and the minimum payment percentage and the minimum payment according to your latest statement.

Step #2: Once you have that list, put them in order of smallest balance to largest balance. The card with the smallest balance is the one you’re going to attack first.

Step #3: Add up the minimum payments for all of your cards. This means if you have five credit cards, what minimum balance do you owe on each and what is the total of your minimum balances?
Step #4: Create your personal budget to see exactly what you have to spend each month and how much you have to pay off your credit card balances.

Step #5: Pay the minimum balance on each credit card you have EXCEPT the one with the smallest balance. On this card you will pay as much as you can on top of the minimum balance. So if your minimum balance is $25, and you’ve budgeted to pay an extra $50 toward your credit card debt, you’ll make a payment of $75.

Step #6: Once your balance is paid off from that credit card, move on to the credit card with the next smallest balance. This time you will add the extra $50, plus whatever the minimum was on the card you paid off, to the minimum that is due on the next card. (Example: $50 + $25 + $25 = $100) Continue the process until your debt is paid off.

Pick a method that will work for you, put it into practice and before you know it YOU can be DEBT FREE!

Tip: Call your credit card companies and see if you can lower the percentage rate. If they will not lower your credit card rate, consider shopping around for a card with a lower rate. If possible, transfer the balances on your high rate cards to cards with a lower rate. Keep in mind that you will likely incur a fee for this transfer. Make sure you cancel the card that you just transferred the balance from. You certainly don’t need the temptation of a card with a zero balance to ruin your progress.

Are you ready to finally live debt free? Click here to learn how to get out of debt and on the road to financial freedom today!

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Coping with Financial Stress

Debt can be stressful... you may feel like there is no hope of getting out of debt. If you find yourself in this situation, there are actually many things you can do, so don't give up hope! The main thing is not to panic and to take time to work out a plan to get out of debt.

The first thing to do is to be honest with your situation and find out exactly how much debt you are in. Take some time to sit down and figure out exactly how much you owe, who you owe it to, and how much you have to pay on a monthly basis.

The second thing you need to do is to determine how much you have available each month to pay towards your debts. To do this, you'll need to add up your monthly expenses, including the monthly payments on your debts, which you determined in the first step. Gather your bank statements, check registers, credit card statements and receipts for the last 6 months to determine how much you spend on a monthly basis.

The third thing you need to do is determine how much your monthly income is. If you bring home more than you spend each month, then decide how much extra you can put towards your debts each month. If you spend more than you bring home each month, then you will need to make some decisions, such as cutting back on expenses that aren't necessary. You may need to get creative for a while to see where you can cut back. Or, you may want to consider getting a part time job to get caught up on your debts and to build up a cushion so you don't get into debt again.

After you've done these exercises, if you find that you are in over your head, you have several options available. You can call your creditors and ask them to work with you by lowering interest rates, lowering your payment amount, or allowing you to skip a payment or two until you can get caught up. There are also several non-profit agencies that offer budgeting and debt management help for free or for minimal costs (just be careful; there are many scams out there, so be sure you are working with a non-profit agency with your best interests in mind).

The most important thing to do if you find yourself in debt is to not panic. Be honest with yourself about your situation and be constructive by thinking of the positive things you can do to help yourself get back on the right track.

Are you ready to finally live debt free? Click here to learn how to get out of debt and on the road to financial freedom today!

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7 Steps to Creating a Monthly Budget Spreadsheet in Microsoft Excel

Image via WikipediaWant to create a monthly personal budget but don’t know where to start? By using a simple spreadsheet program like Microsoft Excel you can create a budget in a few minutes.

Here’s how to get it done!

Step 1: Open Excel or your favorite spreadsheet program, open a new spreadsheet and give it a name. If you want to lighten up the personal budgeting process, give it a positive name like “The Best Life Budget.”

Step 2: Create four columns and name them: Category, Monthly Budget Amount, Actual Amount and Difference. If you want to really track your personal budget on a closer basis, add a column for each week of the month. It will look like this:

Category - Monthly Budget Amount - Week 1 Spending - Week 2 - Week 3 - Week 4 - Monthly Total Spending

Step 3: Begin creating your rows and main categories. Under the caption of Income, consider the following sub-categories:

Wages
Bonuses
Interest Income
Investment Income
Misc

This information is generally found on your pay check stub and monthly bank and investment account reports.

Step 4: Your next category is your income after taxes. Consider the following sub-categories:

Federal Income Tax
State and Local Income Tax
Social Security/Medicare Tax
Income after taxes

Step 5: Now we start taking a look at expenses. It is helpful to break your expenses into categories that fit your lifestyle. Some category options are:

Home
Utilities
Food
Family
Medical
Transportation
Debt
Entertainment
Pets
Clothing
Miscellaneous
Investments and Savings
Donations

Step 6: Within each of your expenses categories you’ll want to have descriptions. For example, under the category of Pets you could have:

Food
Veterinary Expenses
Grooming
Boarding.

Step 7: Your very last two rows will be something along the lines of:

Total Investments and Expenses
Spendable Income minus Total Expenses and Investments

That’s it in a nutshell. Spend some time working with your categories so you have a personal budget that works for you and encompasses all of your expenses. The last thing you’ll want is your indefinable miscellaneous category to be your biggest expense – that won’t help at all! Once your categories are defined and listed, it will take a few minutes to create the spreadsheet.

For ease of use, consider printing out your personal budget and placing it in a location that is easy to access. Keeping your spreadsheet on your computer is excellent for archiving the information, and Excel certainly makes it easy to compile the data. However, it will likely be easier to stick to your personal budget if you can see how much you have to spend.

Recommended: The "New" Complete Budget and Bill Organizer

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