Living Without Debt

The Consumer Credit Counseling Service of Dallas, Texas indicated in 2006 that the average American family has over $9,000 in credit card debt spread out over an average of 7 different credit cards.   With excessive interest rates and fees charged by credit cards, it's no wonder that Americans are drowning in their credit card debt- not to mention home mortgage debt, vehicle loans and other sources of lending!

Debt has a way of effecting your life, whether you realize it or not.  You are constantly stressed over whether or not you'll be able to keep up with the payments- and if something unexpected should happen (you lose your job, for instance), you're going to quickly spiral downhill! 

Before you can save money for your retirement, save money for your children to go to college or for any other long term goals- you really must concentrate on getting out of debt.  The notion of "pay yourself first" does not apply to famlies who are in excessive debt, and here is why:

If you are paying 12% interest on your credit cards- and you simply send the minimum payment to each card in order to have money left over to put into a savings account, your savings account would have to earn you MORE than 12% interest in order for that to be an effective strategy for personal wealth!  Otherwise, the interest you are paying on your debt is eating up far more money than the interest you are earning on your savings accounts.  Even high yield savings accounts aren't going to earn you as much money in interest as what you're being charged on your credit card debt- so it just makes more financial sense for individuals with debt to get out of debt before they focus on saving money for long term goals.

Becoming Debt Free

Unfortunately, climbing out of debt is not as easy as getting into it!  You need to make consistent changes in spending habits, reduce unnecessary expenses, and really focus on paying each credit card off, as well as other debt, in order to make it happen. 

For credit card debt, one of the popular methods of paying the cards off is to use a credit counseling agency.  If you decide to go this route, be sure to thoroughly research the company and check their standings with the better business bureau.  Often, however, an individual can dig out of credit card debt without the use of agency.

First, make a list of all the credit cards you have- include the interest rate, how much you currently owe, and the minimum payment amount.  One strategy is to start with the account having the lowest balance.  Send as much money as possible to this account each month, so that it quickly reduces the balance.  Once you have one card fully paid off, you'll have the money you were originally sending to that account available to send to the account with the next lowest balance, and so on.  It is one of the fastest ways to get out of debt without declaring bankruptcy or getting a consolidation loan.

How to Stay Debt Free

Once you've managed to get rid of the majority of your debt, you want to keep it that way!  Many people run out and get another credit card the moment they've paid one off and it completely defeats the purpose!  Once you have become debt free, your goal is to stay that way.  You will want to start saving money for long term goals, as well as for living expenses- in case you have an unforeseen emergency that prevents you from making money.  Creating a budget is helpful to monitor your spending. 

If you have self control, you can make use of credit cards offering 0% interest rates and/or cash back programs- provided you pay your balance off in full at the end of each month to avoid growing another debt.