One of the biggest myths about being in debt is that you have no control over it and that outside forces are conspiring to drive you deeper into debt. While there are some common practices that are being used to squeeze individuals that are in debt even further, it is possible for each and every individual to take financial control of their lives and extract themselves from debt. Taking financial control of your life will require you to act responsibly regarding your money and for you to take responsibility for your actions, two things that are very hard for some individuals to do.
Step 1 – Separate Your Wants From Your Needs
One of the hardest steps for many people to take regarding their finances is separating the things that they want to spend their money on from the things that they need to spend their money on. New clothes are not a need unless you have gained enough weight that nothing in your closet fits and you need clothes to go to work. Food is a need, but a $3 latte from the neighborhood coffee shop is not. If you are in debt, you will need to vastly reduce the amount of money that you are spending on your wants and focus on spending your money on the things that you need.
Step 2 – Downgrade, If Possible
Many individuals have been suckered into believing that they need to purchase the best of everything to be happy in life. The truth is that there are many lower priced options that are just as good and cost a significant amount less than their brand name counterparts. For example, when grocery shopping a person can save 25% or more on their grocery bill by purchasing the store brands instead of the brand name items and in most cases the person will not even be able to tell the difference in the taste of the food.
Step 3 – Cut Unnecessary Expenses
Almost every individual has unnecessary expenses that can be cut to reduce the amount of money the individual is spending each month. A cell phone bill can be cut in half by reducing the amount of daytime minutes used each month and limiting personal phone calls to nights and weekends. Premium channels on your cable bill can be eliminated to reduce the cost of the cable bill or cable can be eliminated altogether and the person can choose to read books instead. There are many examples of where expenses can be cut by reducing the amount of unnecessary items in your life and each item cut frees up money for other necessities.
Step 4 – Pay Bills Before Spending Money On Other Things
Many people are irresponsible when it comes to paying their bills, spending their money on the things that they want to spend their money on and not having enough at the end of the month to take care of all of their bills. This often results in late charges being added to the bills, which steadily increases the overall amount that the individual owes. It is important to take care of your debts before spending you money on items that you do not really need.
Step 5 – Put Money Away For A Rainy Day
If following the previous steps cause a money surplus in your bank account, do not rush out and spend it on the first new thing that catches your eye. Instead, put the money into a savings account to be used for a rainy day. Many individuals become mired in debt because of an unforeseen expense that they did not have the money to pay for, causing them to borrow money at ridiculous interest rates or putting off paying other bills which damages their credit score and increases their debt with late penalties and other charges.