5 Steps to Debt Free Living

While the government is claiming that the U.S. economy is recovering from the recession, according to the latest studies, consumers aren't very optimistic about the future. The unemployment rate is high; the average national income has decreased; and consumers apparently are not making as much progress as was originally planned in paying off their debts.

The first step to a debt-free living is to keep debt to a minimum. Financial advisers recommend keeping the total debt under 40 percent of your gross income. Your mortgage payment should be no more than 30 percent of the gross monthly income and other debts, including credit card payments, under 20 percent. You are more likely to experience financial stress if you spend more than that on your debt payments.

Many consumers don't realize that having a good credit is very important. Today, more than half of employers do a credit check on potential employees. Your credit score determines the interest rate and the amount of the loan, should you need one. The second step is to improve and monitor your credit.

Step three is to make wise choices regarding debt. Several years ago, a "good debt" was a debt that brought a return on investment, for example, a mortgage or a student loan. Times have changed, and in today's market, college graduates may only get jobs at low-paying venues, such as Starbucks, and home equity is pretty much non-existent. Now, a good debt is any debt that you can repay in a timely manner.

Step four is to make a commitment to pay off your credit card debt. You should make more than a minimum payment and avoid raking up more debt. Keep the balance low to be able to pay it off in 12 to 18 months.

Step five is to avoid paying the fees. Many consumers pay a significant amount of money in credit card fees. While the government passed the laws that restrict how much credit-card companies can charge in certain fees, consumers may still pay high fees for phone support, foreign transactions and for inactivity.

 

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