ADOPTING THE BABY STEPS: ROLLING OUT OF DEBT

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Debt is something which hinders a person to financial stability, it hinders a person to think and act clearly according to his needs and wants. Having a debt is like being stuck in a rut, hard to move on. As hard as it sounds, there are just so many instances that a person who is determined not to loan or borrow might still be forced to get acquainted with debt. Life's surprises do not all have a happy ending, there is just so much with life that sometimes people are forced to go into debt with their own dear reasons.

As it looks like normal these days already, most if not all people do have debts. So what would be a better way for us to start our life anew than to clear ourselves of debt.

From Dave Ramsey's "Baby Steps", he has prioritized clearing oneself from debt over the others and right after keeping an emergency fund. According to importance, having an emergency fund is indeed a much needed fall back in case something happens.

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The West may apply Dave Ramsey's ideas as they are but for the rest of the world, there should be some minor alterations in order to have with financial freedom. 

As stated in the book, clearing up debts according to the interest rates is a good way to work on your debt(debt snowball). This asks one to arrange his debts according to the interest rates and prioritize paying the one with the highest interest rate. Focusing on a single debt at a time will help you pay a bigger amount which can help you complete your payments faster.

Another case, is to divide your payment among the debts you owe and pay equally. This is somehow a little bit disadvantageous because there would always be debts which are bigger in amount than others. Not paying the minimum in this type of debt will incur more interest.

So how can a regular employee with a minimum wage be able to free himself from debts?

Paying debts need a lot of sacrifice. The first sacrifice will require you to immediately allocate a portion of your salary to the debt you want to finish. This should be done right after you received your pay. The sacrifice will come in budgeting the rest of your 15-day salary throughout the upcoming 15 days.

Ways to budget the remaining fund?

• Pack your lunch from home. If you are more comfortable with taking lunch out, this might come as real pain. Just think that you only need to pack lunch from home until you can pay all your debts.
• Walk to work. If you live just a few kilometers from work, wake up early and walk to work. Wear comfortable pair of shoes for this case so you will not feel so terrible upon reaching the office.
• Follow your budget strictly. This not only concerns about stopping eating out or treating friends and family. This would also mean to remove those unnecessary things from your list. Prioritize on those things you need, list them down, keep some pocket money, and the rest of your money should be paid to your debt.
• Learn to eat food which does not cost that much. It might be great to eat sumptuous meals everyday, but how about adding some veggie meals a few times in a week. Vegetables are so much cheaper (and even healthier) than meat.

How should you pay your debt?

Most employees feel it is more convenient to pay debts every month-end, the others would like to pay on the 15th and another on the 30th. Both ways will be reasonable as long as one has the determination to stick on one's budget plan.

Those who would like to pay only on the end of the month, it would be a good plan to budget all the expenses on the 15th then try to pay as much as you can on your 30th pay. If there is an excess on the 15th, discipline yourself not to buy anything else and keep it for the 30th's budget.

For those who would like to pay every payday, take note on the dates of paying bills and all those scheduled expenses. On your payday, immediately separate the amount you want to pay to your debt. The remaining amount will be used for the other necessities like food. This does not mean that you give food the least importance. From your remaining amount, budget it on low-cost food which would still meet great nourishment for your family.

Apart from paying the interest, make sure that you follow the amount you decided to pay on the principal.  Bigger amount paid on the principal debt will mean the faster you will be free from your rut.

Learn about the other steps.