Debt diet: How to lose it for good
Debt is an insidious aspect of personal finance.
It creeps into your life while slowly and silently gaining strength until one day you finally realize just how out of control the monster has become.
If you haven't had first-hand experience with debilitating debt, you might find this description hard to believe. But those who have can attest this is no exaggeration.
It can take years to pay off high-debt balances.
So what happens when you finally reach your goal of being debt-free? Consider the following tips to prevent gaining back what you worked so hard to lose:
Lifestyle change. -- Understand that all of your efforts to become debt-free will be wasted if you are unwilling to make the necessary lifestyle changes to live below your means.
Many mistakenly think the sacrifice and hard work throughout the repayment phase are temporary conditions. If you cannot commit to changing the aspects of your life that got you in trouble in the first place, you are doomed to repeat the cycle of debt.
For more on how to change your habits, read our 7 smart moves to curb your spending.
Smart budgeting. -- Now that your debt has been eliminated, you probably have some "extra" money available. Smart money managers know there is no such thing as extra money.
A good budget will take all of your combined income and allocate a specific amount of money to various financial categories. The categories may vary from person to person; however, the most common include: bills, savings, investments, groceries, gas, entertainment and spending.
A budget based on your unique financial goals will help you grow savings and avoid future debt.
Compounding interest. -- Let the power of compounding interest work in your favor.
When applied to debt balances, compound interest increases the amount you owe and makes it harder to pay off debt. When applied to savings and investments, compounding interest allows your assets to grow, taking you one step closer to financial freedom.