The Vicious Cycle of Debt

When one gets into significant debt, it is very difficult to get out. But getting out is absolutely critical if one is to avoid the stress and anxiety of always owing money to others and having to continue to accumulate debt because current payments do not allow the savings cushion necessary when emergencies arise.

Steps to Eliminate Debt

There are a number of options to eliminate debt, and each debtor will have to decide on the correct path for himself.

1. If payments are affordable and there is any disposable income each month, then the process will be sequential and progressive. Any disposable income will be placed on the smallest of the debts until that debt is eliminated. All of the amount paid on that first debt will not be added to the normal payment of the second debt, and so on, until all debt is paid off. The additional commitment of cutting up credit cards will be a solution to incurring further debt. Most individuals, who adopt this path, keep one credit card to be used for emergency purposes only.
2. If a debtor knows that he does not have the self-control to practice an organized debt payoff plan, he should find another who is willing to take charge. This may be a trusted relative or friend. This method involves turning all income over to the trusted individual who in turn supplies the debtor with an allowance for necessary expenses. This third party then takes charge of getting the debt paid off. As well, credit cards are turned over to this third party, so that the temptation to use them is eliminated.
3. A debt consolidation loan can be secured to pay off all existing debt, obtaining one payment which is lower than the others combined. Again, the use of credit cards for any further purchases must be eliminated in some way, preferably by cutting up the cards, maintaining only one for emergencies.
4. Employment of debt counseling/consolidation specialists can be beneficial because they are often able to negotiate lower total debt amounts with creditors and assist in the securing of a debt consolidation loan.
5. Bankruptcy is a serious step but is often necessary if debt is overwhelming and the payments cannot be paid with current income. The negative impact on a credit rating is certainly a consideration, but this action does serve to give the debtor a fresh start.

Once Debt is Eliminated

The purpose of debt elimination is not simply to get oneself debt-free for the short-term. The purpose is to put someone on the path to remaining debt-free for the rest of his life. An unadulterated debt-free financial life requires key commitments and practices as follows;

1. Nothing is purchased unless there is cash to pay for it. Amounts charged on credit cards are no more than can be paid in full when the bill arrives.
2. Credit cards are used for emergencies only.
3. No luxury item is purchased nor any entertainment cost incurred unless there is cash on hand to pay for them.
4. A regular savings and investment plan is set up and strictly followed. This accumulated savings may be transferred to higher interest paying investments as amounts allow. Retirement savings is regularly accumulated as well.

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