Would you like to live a debt-free and stress-free life? Being in debt can result in a lot of stress in our daily lives if we don’t do something about it.
Debt can be both good and bad. If you are borrowing money from the bank to invest in something that appreciates in value and allows you to pay off the monthly installment with surplus at the end of the month, it is considered good debt as it’s generating income for you.
On the other hand, if you are getting in debt for material things like a car or vacation which does not generate income for you, you are getting yourself into unnecessary financial stress.
Something that I have learnt from my mentor is to purchase luxury goods like a bigger house or car with cash or dividends that I make from my assets. Never use my savings to invest in luxury items.
Remember: it is not how much you make that matters; it is how much you keep.
Follow these 4 simple steps to improve your financial position today by learning how to get out of debt in the shortest time possible:
- Step 1. Take the no debt pledge.
- Step 2. Set your standard of living lower than your current level of income.
- Step 3. List down all your debts
- Step 4. Determine how long would it take to pay off your debts
- On a final note
Step 1. Take the no debt pledge
If you can’t afford it, don’t buy it is the basic rule of thumb.
Buy things with cash only.
This will prevent you from getting into further debts.
Step 2. Set your standard of living lower than your current level of income
Live on 90% of your income.
Use the excess or the amount you pay to yourself to accelerate debt payments and to build wealth.
If you don’t want to give up on your luxurious life, you should look for ways to increase your income.
Spending money is about allocating your resources wisely.
Step 3. List down all your debts
On 1 sheet of paper, write down all your debts, the interest you are being charged on each, the monthly payment, and the balance remaining.
On another sheet of paper, list the debts in order, starting with the one with the lowest balance.
4. Determine how long would it take to pay off your debts
Determine how long would it take to pay off the smallest debt if you applied the 10% savings from your income to pay off the debt on top of the monthly payment.
Do the same for the second debt if you applied what you have been paying for the first debt with the additional 10%.
Each time a debt is paid off, add the payment for the previous debt to the current one along with the 10%. Do this till you clear all your debts.
By doing this, you will be able to determine when you can pay off all your debts.
On a final note…
Get professional help if you still need guidance on how to deal with your financial situation. For people who are staying in Singapore, you may want to visit Credit Counselling Singapore for help to deal with debts involving banks, especially credit cards since the number of cards issued is on the rise.