Becoming Debt free

A way out

The only absolute way to avoid the use of debt, in the first place, is to have a financial plan prepared at the beginning of each year that does not allow for the use of debt, and that you will stick to through self-discipline.

The major problem most people face is how to get out of the debt that they are already in. there are only two ways to get out of debt after making the decision to avoid the use of debt: Examine the assets you have to see which ones could be sold in order to reduce debt; and in the absence of assets to sell to eliminate debt, set up a repayment schedule and strictly adhere to it.

Assets that may be sold are investment assets, the liquidation of savings accounts, and perhaps even borrowing from the cash value of life insurance at a lower interest rate rather than what is being paid on credit card and consumer debt.

In determining which assets to sell in order to reduce debt and be debt free, remember that the assets sold should have a lower yield or appreciation rate than the debt cost.

Repayment - the hard way

Not everyone has the luxury, however, of selling assets to repay debt. Many of you are perhaps deeply in debt and have no assets at all. In fact, statistically, 80% of Amercians owe more than what they own; therefore, selling assets is not an option. The only option, then - other than receiving an inheritance or striking oil - is the slow, painful, and difficult process of making monthly payments. You must decide, first of all, not to take on any more debt, and second, to set up a schedule of debt repayment.

Today's Bottom Line

One of the other keys to repaying debt is to precommit any extra income or amounts from reduced expenses - in other words, excess cash flow - to debt repayment.

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