Financial freedom can seem like an unattainable fantasy until you start to develop a good strategy for attaining it. While it may require making some difficult decisions, you can eliminate your debt and give yourself a fresh start. The following guide will help you work towards your own financial peace of mind.
Assess Your Financial Situation
The very first thing you’ll need to do is to assess your financial situation to determine exactly how you’re positioned to obtain financial freedom. This means tallying up your monthly expenses, including minimum required credit card payments, and comparing that total to your total income. If you’re not making more than your spending each month, it may be time to consider the pros and cons of debt consolidation. Getting professional help to ensure you can start paying off your debts may be worth the extra money you’ll have to pay in fees for those types of services. Companies like Strategic Consulting can help you find a debt relief option that’s right for you.
Create an Actionable Budget
If you do have enough income to help you pay off your debts, you should start by creating an actionable budget. You should view your budget as a living document in that it should be revised anytime there’s a change in income or debts. Outside services can help to assemble an effective budget going forward. Once you have an accurate assessment of your income and expenses, you can determine how to meet your financial obligations each month. Going along with this, look for ways to minimize your spending, such as canceling cable and relying solely on internet streaming for your content. You should also cut out gourmet coffee purchases, fast food lunches, and other unnecessary expenses.
Make All of Your Minimum Payments
Once you start eliminating debt and rebuilding credit, it’s important to avoid doing things that will sabotage your efforts. In particular, this involves making sure you make all of your monthly payments on time. Even a payment that won’t show up on your credit report, such as a monthly electric bill, will appear on your credit report if the payment is missed or late. Just one late payment can set back your credit score and leave you in a worse financial condition.
Check Your Credit Reports
You can request a free credit report from the three primary credit reporting agencies once per year, and you should do that every year. Once you get those reports from Equifax, Experian, and TransUnion, compare the reports to one another. Any discrepancies, including any charges you didn’t make, should be reported to the agencies that show them on the report. You should dispute errors and file reports of identity theft when that is applicable. By keeping up with your credit reports and disputing incorrect items, you can ensure your score is accurate.
Use the Snowball Strategy
While the previous steps are all necessary, this is the step that will really help you move closer towards financial freedom. The snowball strategy provides a way to eliminate debt by paying off one creditor at a time. You should start with the smallest debt and pay as much over the minimum payment as you can. As you pay off this debt, you must continue making the minimum payments to your other creditors. Once that smallest debt has been paid off, the money you were paying to them should be diverted to paying off the next smallest debt. As you go through this process, you’ll have more money to put towards each consecutive debt. By the time you get to your biggest debt, you’ll be able to pay it off faster by devoting all of your disposable income towards it.
These tips will work for anyone, but your situation will determine how quickly you can move from step to step. Once you use this strategy to pay off your debts, the portion of your income you were using to pay off your debts should be deposited into an interest-bearing savings account. This will help you create a nest egg that you can use instead of borrowing money to cover financial emergencies.
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