It's very difficult to maintain a luxurious lifestyle during a period of economic slowdown, but we are so used to such a lifestyle that we can't think about settling for something less. Luxury has become a status symbol these days. If not for ourselves, then we do it to impress other people around us. We don't realize that while doing this, we end up forcing ourselves in severe financial crisis. By the time we realize the seriousness of the issue, we see that the amount of money we owe as debt has already passed the economic safety point.
At that moment, most of the people get nervous. Not realizing what to do in such situation, they end up taking some disastrous step, which pushes them further into crisis. The most important aspect of debt management, which sadly most of the people lack, is 'planning'. Though, paying off debts may seem a tedious task, it can be achieved if properly planned. In fact, with a well-planned formula and firm determination, transforming debt into wealth is very much possible. Though not impossible, it won't be that easy. To become debt free, one has to inculcate a lot of self discipline and have a good foresight.
Transforming Debt into Wealth - How to Go About it?
The foremost thing to be done is to prepare a list of all the outstanding debts and total them. All the debts you owe have to be included in this list, including credit card debt, home equity loans, and car loans. Tally up all the monthly payments of the debts that you are repaying and find out whether you can add any extra amount towards monthly debt payment.
As a part of the blueprint of this plan, decide the order in which you would like to repay your debts. This can be decided by taking into consideration factors like interest rate, debt size, etc. Most of the people choose to pay off the smallest debt first. Ticking off a debt from your long list is bound to boost your confidence. It's important to keep in mind that sticking to your plan is more important than making a priority list for debt repayment.
You can start off by paying the minimal installment for each debt, so that you can add some extra amount for the repayment of the first debt in your priority list. Continue in this manner till the first debt is cleared. After you are done with the first debt, you can make second debt your priority. While doing this, ensure that you do not reduce the payment amount that you were paying to repay the first debt.
Just clearing one step doesn't mean you can go into a relaxed mode. Pass on the same monthly amount from the first debt that is cleared, to the next debt repayment. Continue with this method as you go on clearing your debts one by one. This may take time, depending on the amount you have to repay, so patience is the key.
Once all your debts have been cleared and you no longer require to pay monthly installments, you can direct this monthly amount to create wealth. The simplest means of doing this would be investing your money. Opting to invest in diversified mutual funds will ensure that the risk involved in investment is spread across various categories. You can invest using dollar costing average, which would ensure that you buy greater number of shares when the costs are low and vice versa.
The most important aspect of living a debt free life, is to remain focused on your financial goals. You will have to put in some serious efforts in terms of decision making. Avoid borrowing, especially for luxuries, as borrowing only worsens our financial condition. If you are left with no other option but to borrow, make sure that you have a proper plan in place as far as debt payoff is concerned. Keep yourself well updated about the market condition and the available investment options. As your monthly income grows, try and increase your monthly investments too. A well-defined strategy can ensure a debt-free life by helping you transform your debt into wealth.