Do You Know Why You Are In Debt?

In the past few weeks, I have had several conversations with clients and other experts in the personal finance industry. I have come to some conclusions about debt: 1) many people do not know how they got into debt; 2) many people are in denial that they are in debt; 3) many people do not know how to get out of debt; 4) many people believe that it is normal to be in debt or that you are supposed to be in debt for the rest of your life.

Unfortunately only 3% or Americans live debt free. First, let me say you don't have to be in debt no matter what some company or creditor tells you. Many people are living debt free lives with good credit, some people have even paid off their mortgage before the 30-year loan date! The only bill I have is my mortgage. The balance on my mortgage decreases each month because I send additional money towards my principal.

Now, the first step to getting out of debt is admitting that you have poor spending habits or that you are in financial trouble. This may be hard to do, but you can do it. If you believe that you can be debt free you will be. Next, develop a plan to take action and take action immediately. Do this by creating a budget for yourself. If you get a steady paycheck this will be easier to accomplish. However, if you do not earn the same amount of money each pay period then you can still create a budget. You create a budget by listing all of your monthly expenses (everything you spend money on during the course of a month) and list your net monthly income (after taxes), then subtract the two figures, if you have any money left over use that money to start paying off your debts and look for other ways to reduce expenses. If you have no money left over, find ways to reduce expenses, make sacrifices and think of creative ways to save money. Some good websites to use to find ways to creative ways to save money are Budgetdial and The Dollar Stretcher.

For large expenses that do not occur monthly you can spread the payment over a period of time, i.e. six months or a year. For example, if you pay $1200 in car insurance and you do not get a steady pay check, put aside $100 a month towards you car insurance so that when you quarterly or bi-yearly bill arrives you will have the money to pay for it and won't feel overwhelmed about paying the bill.

Remember if you are in debt, you don't have to stay that way, you can be debt free. I was once $19,000 in debt and was able to get myself out of debt without filing for bankruptcy. I had to make huge sacrifices such as catching public transportation, I stopped eating and going out, didn't buy any new clothes or shoes, didn't go to hairdresser appointments, etc. Nevertheless, it was worth it. I now have excellent credit, can go to any bank, and get approved for a loan.

If you have questions on how to create a budget or any other personal finance issues send me an email at hfreeman@hefreemanenterprises.com. Good luck to you!