Debt equals negative wealth. If you want to be wealthy, do not go into debt. As simple as this sounds, people forget this basic principle. Unfortunately, most people tend to take the easy way out and when they want more, they impatiently spend more - now - rather than wait until they generate more income or create some surplus. They turn the wealth equation around so that their expenditure is greater than their income, which results in negative wealth or debt.

Follow these 7 simple rules and you will never have debt problems again:

1. Make a commitment to eliminate your debt. It takes three things to accomplish anything: Passion, Motivation and Accountability. First create the passion by imagining yourself as totally financially free. Secondly, create the motivation by establishing a 'debt-free' plan. And, lastly, create accountability by taking absolute responsibility for all your debts - and also know that you can change that!

2. Sign on a bus: "Credit is the party. Debt is the hangover!". Learn how to stop buying things you cannot afford.

3. Learn how to live on cash. Its easier than you think and more fun! If you cannot manage the temptation of shopping with credit cards, stop using them. If you absolutely have to have a credit card, just have one - with a limit of no more than $1,000.

4. If you are prepared to manage the usage of your credit cards, start by having only one card with a limit of only $1,000 and pay the balance EVERY month.

5. Initially, increase your fixed costs to 55% or 60% of your net income to include the extra payments required to reduce the debt. Lower your variable and discretionary allowance accordingly but do not decrease your savings.

6. Take control of your debt. If the total amount of your fixed costs is greater than 60%, arrange with your creditors, if possible, to reduce your repayments to fit within 60% of your net income. Do not promise or pledge payments more than you can realistically afford. Sell off any large items that you do not need, which are costing you money. Arrange to consolidate your debts into one larger loan, if possible.

7. Pay off credit card debt first. This is usually the most expensive with interest rates of up to 20% per annum. Pay off your debts in order of cost. The higher the interest rates, the more costly the debt.

More than ever before, we have the ability to earn a lot of money. There are more middle-income earners now than ever before, but the wealth distribution stays about the same. The more we try to live above our means and buy things we cannot afford, the deeper we dig our debt-ridden ditches. The only way out is to financially mature and start taking responsibility for our actions.

Debt represents all your loans and money owed to other parties. This can include your home mortgage, car loans, financing loans, personal loans, personal debts, other bank loans and credit cards. The best way to insure your debt situation does not spiral out of control, is to only have one debt. If you have several loans including a home mortgage, your bank may consolidate all the loans under the one mortgage, providing you have sufficient equity in your home. If you do not have a mortgage, you may also consider consolidating all your credit cards and loans into one personal loan. If you have no personal loans or mortgage, but several credit cards - reduce the number of cards to just one. In this way, you will gain more control over your debt, be in a better position to pay it off and not be tempted to increase your current debt position.

Managing you credit cards is of critical importance in managing and containing your debt. The problem with using credit cards is the infinite feeling they give us. There is no limit to what we can buy, or so we think. Unless we add up every receipt and keep a constant tally, it can easily get out of control. That $15 here, the $25 there, all adds up. And soon we up to our limit. Credit cards make it too easy to fall into bad habits that ultimately lead to wastage and extravagance. Yes, I can have that new dress. No cash? Never mind, just put it on credit. Won't think about it now. It will all work out later. However, later will come, and so will your credit card statement.

Remind yourself, that any hardship you may experience now to pay off your debt is only short-term. The time will soon pass and ultimately you will be grateful. The discipline you exert now will mean extra dollars in the bank later.

 

 

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