Getting Out Of Debt Need Not Be Financially Costly

Getting out of debt should not be viewed as the impossible dream because anyone with a plan and commitment to financial freedom can get out of debt. The first step towards financial freedom is developing a financial freedom mindset. Spend time thinking about how great it will feel to be completely deficit free rather than worrying about paying next month’s minimum credit card payment.

It is a good idea to pay off deficits before starting an investment plan because deficits limit the amount of money that can be invested. Make paying off financial obligations the primary goal and then use money to invest once all deficits are eliminated. One of the most important steps, which many people ignore, is to first build an emergency savings fund.

Build an emergency savings fund of at least five hundred dollars, preferably one thousand dollars, which will be used instead of a credit card in case of an emergency. Once the emergency savings fund is in place start to pay off the credit card balances one at a time. Start with the card with the lowest balance by sending in as much as can be afforded each month from one’s household budget.

Once the credit card with the lowest balance is paid off start to pay off the next lowest card balance and then move on to the next one and so on. After the credit cards are paid start to pay off the car loan. Once the car loan is paid off then start to pay off the home mortgage.

Many people believe the home mortgage is a fixed part of life and that they will be paying off the home loan for the next thirty years but this does not have to be the case. A home loan can be paid off sooner than the loan agreement states and the sooner the loan is paid off the less the borrower pays in finance charges. Most people if given the choice, and they do have the choice, would rather keep their hard earned money rather than giving it to the bank.

Once all credit cards, vehicle loans, and all other deficits have been paid off it is time to invest. Start investing in a Roth IRA because the Roth IRA has advantages that other IRA plans do not have. Save at least fifteen percent, preferably twenty percent of the annual household budget in a Roth and let the money grow.

Getting out of debt does not have to be a gigantic undertaking but eliminating debts will only happen through concerted effort. Start by building a savings fund that will be used in emergencies instead of relying, like most people, on credit cards for emergencies. Start to pay off the lowest debts and once the lowest debts are paid off move on to the next financial obligation and build the momentum towards financial freedom.

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