Life after debt seems to be wishful thinking for most consumers that are way in over their head with debt. They read stories and probably know some people that were able to get out of debt but have never paid too much attention on how they themselves can be debt free. They see debt as a forever companion and minimum payments is then only way to make the payments.
Stories of how sticking to a budget, debt free through minimalism or getting rid of debt with the help of debt consolidation looks like a herculean task. But these are real solutions to an ever growing debt problem. Being debt free is a possibility because a lot of people are able to get it done. There are practical steps that have been formulated to apply to different situations. The only variable is how people stick to the program to experience life after debt.
Financial moves like debt consolidation, debt management and even debt settlement are some of the ways to get your financial standing on the right track to recovery. Coupled with a financial diet in terms of watching what you spend and finding ways to increase your income, you can be looking at financial freedom in a few years. After years of being in debt, you can now start to think about mornings after debt.
Life before debt
Undertaking a financial audit greatly increases your understanding of your current situation. Most borrowers would take a close look on where their debts are coming from, how much all the payments total every month and where they are getting the all the funds to pay for the monthly obligations. But another thing to some people overlook is an emotional audit as well.
One great strategy to get you going in your pursuit to financial freedom is to study your current emotional state such as how you feel and how other people interact with you. Recognizing these intangibles and making mental notes of how they affect your life can be a potent reminder to steer you clear of debt again.
Debt is a big problem and being in debt is a situation a lot of people know about. They are either in it themselves, on the way out or living debt free already. Whatever people’s situation is, they know about debt and how it affects the lives that carry it. Because of this, sympathy is an all too common reaction a borrower in debt would get from people around them.
This can start from the family and ripple down to friends and co-workers. Knowing that you are in debt could attract sympathy from other people. How people react to it is different from one borrower to the other. Some like the feeling of other people looking out for them while others resent this reaction and makes them feel weak.
There are other people needing financial help – siblings needing an extra few thousand for a mortgage down payment or friends finding themselves a few hundred dollars short for student loan payments. But if they know you are in debt as well, they would think twice before opening up the topic of borrowing money from you. You get a free pass because on the list of people they would think of borrowing money from.
It is always nice to help out and in these types of situation, it is better to be the one lending money rather than being in a position where you need to borrow from people around you.
Being in debt oftentimes gives you a scapegoat to pass on some trips or Friday night outs. This is limiting your social interaction and other borrowers are in fear of losing some friends and opportunities in the process. But this is a necessary move to be able to save up on funds to apply for payment being in debt is a hard part but these challenges can keep you focused because of your desire to get out of the situation.
Life after debt
After you have successfully paid off the last monthly payment on your debts and loans, you are officially debt free. There will still be monthly payments for living expense but that does but count. Taking care of student loans, credit card debt, auto loans, mortgage and even signature loans will give you the financial freedom that you have worked so hard for. All those times that you had to pass up a furniture discount or a holiday trip on sale will be all worth it.
But not a lot of people know that fear is common even for consumers that has paid off their debts. Of course you do not have to toy with the idea of ignoring your debt collector because they will not be in contact with you anymore. Fear comes from not knowing what to do next and fear from the possibility of going back to the old ways and finding yourself in debt again. Here are some of the things you can do.
A few months into it and you might find yourself with more cash than you know what to do with. The amounts that used to go to payments are just there. There are no more payments to be made besides from the living expenses that are already budgeted from the beginning. Do you increase your lifestyle? Do you increase the channels in your cable or put a faster internet connection? Is it time to install that automatic garage door?
You can use that feeling of getting used to making payments every month. But instead of making payments, Forbes.com recommends that you send it to a savings account as if you are still making payments to some loans. This can feed of that routine of making payments every month.
Start redoing your budget based on priorities outside debt payment. After taxes and living expenses, your monthly budget would have a drastic makeover because of the absence of loan and debt payments. Are you going to save or invest? How much are you going to put on these ventures? Which one do you do first?
Building your emergency fund takes the top spot. This is because you can use it when rainy day comes. It could be in the form of losing a job, medical emergencies or having to relocate to another city or state. Your emergency funds will help you stay away from future debt. The more you put in, the longer it can last. The general rule is 6 months worth of expenses is already a good amount for emergencies.
Get your retirement fund started early as well. It is best to have started with this even before you were making debt payments. Taking advantage of 410(k) company matching and maxing out the allowable contribution per year is a great start to be able to retire when you want to. With the monstrous student loan debts, you might want to start saving for your kids college tuition already to help them steer clear of college loan debts.
Statisticbrain.com shows that 70% Americans before or after debt already donates about 3% of their income to charity. This is another good way to pay it forward and help people that are in most need. These are just some of the ways on how to handle your finances after debt.
Diana hates debt just as much as you do. She is a finance writer for National Debt Relief. She aims to provide the best information to win the battle against debt.