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How to Become Debt Free


Millions of Americans are in debt. We've been brought up in a society that teaches us that we have to have it all and we have to have it all right now.

This programming is subtle, but it's everywhere and very few people make it into adulthood without a myriad of credit cards, store cards and loans. It's almost expected of us to go into the red just to keep up with the latest trends.

Debt 'myths' are very prevalent in our society today and when you buy into them, they can very quickly become a burden that you carry with you for the rest of your life.

In this report we are going to explore some of the most common and damaging debt myths, bring them to conscious awareness and give you the practical steps you need to overcome them so you can finally get out of debt for good.

Let's get started...

Common Debt Myths Debunked

Myth: Debt is the American Way

While it's true that millions of Americans are in debt, being in debt is not truly living the American dream. Today's society has grown up believing you have to go into debt in order to have things you want such as nice cars and nice homes. However, this is not true. When we learn to live within our means and how to save money, we can buy those nice things with cash, without having to go into debt.

Myth: Once in Debt, Always in Debt

This myth is probably the easiest to believe because it's so easy to get caught in the 'cycle of debt' - and a vicious cycle it is. Once you incur debt, you become a slave to the lender. You no longer have the same cash flow you once had. Now you have to make payments to the creditor or lender so you're not able to save as much. So, the next time you need or want to buy something, you reach for your credit card or get another loan and incur even more debt.

However, the cycle can be broken. You must make a conscious decision not to take on any more debt. This can be difficult because you're going to have to go without things and you're going to have to learn how to control buying on impulse. But as with anything that requires discipline, such as dieting or budgeting, you can do it. Then, start paying off the smallest debt first and make the minimum payment on the rest of your debt. Once the smallest debt is paid off, then take the amount you were paying on that debt and apply it to the next smallest. Once that's paid off, do the same and continue this until all your debts are paid off. It's called the snowball effect.

Myth: I Need to Build My Credit for the Future

Once again, this myth is ingrained in us as Americans. We've been taught to buy everything on credit. When you learn to save money and to pay with cash, you won't need credit to buy things. If you're fortunate enough to be reading this at a young age and haven't incurred debt yet, be encouraged and learn to budget and save for the things you want and need in life. Your cash flow will be much richer and so will you.

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Warning Signs to Watch For

It is most people's desire to live the American Dream; to be able to buy whatever you want whenever you want it. However, the American Dream can turn into a nightmare if you're not careful. Debt can creep up on you and take you down when you least expect it and when you're most vulnerable.

Going into debt is not necessary in order to be able to have the things you need and want. However, it's easy to get caught up in the trap of thinking you have to have it now, and oftentimes that means putting it on a credit card or taking out a loan.

Aside from an "I want" mentality, here are some other warning signs that you might be in danger of a lifetime of indebtedness:

You Don't Have a Budget

When you don't have control of your money and finances, you are at risk of going into debt. A budget allows you to the freedom to tell your money where it's going and opens the door to savings. The key to staying out of debt, yet having the freedom to purchase the things you want and need, is being able to save up for them and pay cash.

You're Living Outside Your Means

When you find yourself struggling to make ends meet every month, you're living outside your means. When you have more going out than coming in, you are more likely to be tempted to go into debt in order to get the things you need or want.

You Don't Have an Emergency Fund

An emergency fund is money set aside for, well, emergencies. You should have at the very minimum $1000 set aside for emergencies. Money for food, weekends away, and routine car maintenance are not emergencies. You should have money budgeted for these things. A true emergency would be an unexpected hospitalization, a death in the family, or a car accident. When you don't have an emergency fund and a true emergency arises, you may be forced to go into debt in order to pay hospital bills or other expenses.

Getting into Debt to "Build Your Credit"

This is probably the biggest pitfall of all where debt is concerned. Your parents and grandparents have probably taught you that you must build credit so you can have the things you want in the world. However, the truth is, you can have nice things without going into debt, including nice homes and cars. The "trick" is budgeting, saving and planning so that you can pay cash. You don't have to take out a loan or use a credit card, even to buy the larger items.

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"I'll Never Get Out of Debt."

If you're like millions of Americans, you too have probably said this a time or three. Most Americans are in debt and many of us simply can't see a way out. But there is hope if you put your mind to it and take steps to change your spending and budgeting habits.


Most people are resistant to the idea of budgeting. If you weren't you probably wouldn't be reading this, and definitely wouldn't be in debt. But don't let the word or the idea of a budget scare you. Actually, a budget will help you take control of your finances and you will experience true financial freedom.

Build an Emergency Fund

The only way you're going to get out of debt is by having cash available when a true emergency arises. A true emergency is an unexpected hospitalization or death in the family. Unfortunately, most people end up having to incur debt when circumstances such as these arise. Your first goal for an emergency fund is $1000. Then build up to cover one month of living expenses, 3 months, 6 months and so on, until you have enough to live on for at least 1 year.

Cut your expenses. Another thing you can do to help you on the road to becoming debt free is to take a good, hard look at your monthly expenses. Your budget will help you pinpoint where you can cut back, such as:

* Cable or satellite: Do you really need 120 channels? You can greatly cut back on your cable package and still have plenty of shows to choose from.

* Daily Coffee or Latte: How many times a week, or day, do you go out for a coffee, latte or cappuccino? At an average of $5 a pop, those can add up quickly. You could put that money toward your smallest credit card balance and really start seeing some light at the end of the tunnel.

* Clothing: How often do you go shopping for new clothes, shoes, purses, and jewellery? Do you really need them? Sometimes we turn to retail therapy when we're feeling down, and while we may feel better at the moment, we quickly feel remorse when we've spent too much and incurred more debt.

Begin paying off debt

Of course this might not sound so easy. But, when you - after getting your budget in place - can see where you have extra money, it will be easier apply that extra money toward the smallest debt balance you have. Once that debt is paid in full, then apply the full amount you were paying on that debt plus the minimum payment owed toward the next smallest debt. Soon, you will experience true freedom from debt.

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It is Possible to Live Debt Free

From the womb most Americans are taught that in order to have the thing we want in life, we must buy on credit and incur debt. However, that simply is not true. There is a better way; you can have the things you want and still live debt free.

Living Debt Free Takes Discipline

The first step toward living a debt free life is having a mind set of discipline. Just like dieting and exercise, you must have a goal and a system in place. If you're already in debt, you will have to change the way you think about credit and how you spend your money. You will also have to learn how to control impulse spending.

Budgeting - The First Step to Living Debt Free

Budgeting isn't something anyone enjoys, but it is a critical skill if you want to live debt free. You have to know how much money you have coming in and how much is going out and designate where it's going. When you're in debt, you are no longer in control of your money; the lender or creditor is. There's no rule about how you should budget, so use whatever system works for you. It might be as simple as a monthly spreadsheet of income and bills to start. There are also online systems and smart phone apps which may make it easier for you. The important thing is not which system you choose, but that you maintain your budget consistently.

Cut Your Expenses to Free Up Money for Savings

This is where most people fail at living debt free. They're simply not willing to give up that expensive cable package or the new car every two years. But if you want to live debt free then you must either earn more or spend less. If you're not sure where you can cut back, try tracking every expense for a month. You might just be surprised at how much you spend eating out, renting movies, and buying new clothes.

Save for a Rainy Day

Before you can truly live debt free, you will need to build an emergency fund. Otherwise you may just find yourself right back where you started the first time the car needs a major repair. The minimum goal is $1000 in savings set aside for true emergencies. A true emergency is an unexpected trip to the hospital or a death in the family.

Make a Plan to Pay Off Your Outstanding Debts

With your budget in hand, take a look at your outstanding debts and plan out how you'll repay them. On popular method is known as the "debt snowball." It involves listing all your debts from the smallest balance to the largest. Make the minimum payment on all but the smallest debt each month. For the smallest balance, pay as much as you can possibly part with. Once that bill is paid off, move on to the next smallest, using the same strategy. Depending on how much debt you have, it may take months or years to be completely debt free, but if you maintain your budget and live within your means, you will be successful.

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Start Young

If you're like most Americans, you've probably been raised to believe that you must "build credit" and incur debt in order to make it in society. However, this simply is not true. Since budgeting and living within your means is not something taught in schools, it's your responsibility to teach your children how to live a debt free life.

Start 'em Young!

Teaching young children how to live debt free begins as soon as they are old enough to understand money. Get a piggy bank and have them start saving. Teach them how to save for things they want, like toys, bikes and video games. Don't allow them to "borrow" from you, or to spend their emergency funds on non-emergencies. Teach them to truly save their own money. Have them put a small percentage of their allowance or gift money in a separate savings envelope or piggy bank for emergencies. This might be an unexpected invite to a party or a book drive at school.

Another way to help children with money management is by allowing them to be involved in your budget. Don't hide expenses from them, nor income. Show them how you allocate every cent toward bills, debt, savings and entertainment. Help them understand why they can't have an extra treat at the grocery store or a new toy today - because it's not in the budget. The more they see you budget your money, the easier it will be for them when they are out on their own.

Encourage Teens to Manage Their Own Money

As your children grow and reach their teen years, they will probably (and should) get jobs. Whether it's babysitting, mowing lawns or a newspaper route, be sure you teach your children how to budget their own finances. Start by having them set up a budget based on their income and expenses. You may even require them to help out with a bill or two. Then show them how to set aside some for their emergency fund, food and snacks at school, gas money to get to the mall, and shopping for school supplies and clothing. You can also teach them how to start saving for a car, car insurance, repairs and gas money.

By the time your teens are old enough to drive, they should have enough saved up to pay cash for their own car, as well as be able to pay for their car expenses. And hopefully they will have enough in their emergency fund to cover these expenses in case they lose their job.

If you've been teaching your children from a young age, or even from their teen years, how to manage money properly, by the time they are adults they will have a good handle on it and more than likely not go into debt as adults.

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