A debt diet is a debt management plan that helps you control your debts and helps you get control of your finances.
There are a number of different steps you will need to take, as suggested by financial consultants and advisors, to help you get rid of all your bad debts.
Here is the step-by-step process that is practiced while following a debt diet plan.
The steps you will take are:
Step #1: Know What You Owe and Beyond It is very important that you know how much you owe.
But just as important, you need to know the total outstanding debt of your entire family.
In all likelihood you are not aware of the debts your spouse or children have, which may ultimately get added to your responsibility.
Therefore it is essential that you discuss your plan of going on a debt diet with your family and analyze the actual figures of your debt, including the interest.
Categorize your debt according to its type, such as debt owing to meeting day-to-day expenses, investments, education, etc.
Step #2: Cut Your Expenses If you owe a debt that costs your day-to-day expenses, work out plan to pay it down as soon as possible.
As you probably already know, it is not a good idea to manage your daily life on credit cards or personal loans.
Either you need to find some other sources of income or work out drastic cost-controlling steps to get out of the risky life style of borrowing money to live day-to-day.
- Follow the Debt Diet By Cutting Expenses When you are on your debt diet, you may have to restrain from a lot of the temptations and "little luxuries" out there that people in debt fall for on a daily basis.
I know it is difficult when you first start your debt diet to do this, but once you have given up those little indulgences that you really do not need, you will start to see your savings account rise and your credit card balances decrease.
That will make the short-term sacrifices well worth the effort.
- Get Extreme: Cutting as Much as Possible If your current debt situation is extreme, you might have to get extreme with your debt diet.
Let me explain.
Taking the above step one step further, you should try to put off all possible expenses.
You should not think of spending a penny for anything that is not a necessity for you.
Prioritize your needs as the most important, important and less important.
Meet all the "most important" needs, compromise on certain "important" needs, and ignore the "less important" completely.
Try this "Extreme Debt Diet" for one or two months and you will quickly get back on the right track.
Step #3: Find an Extra Source of Income This is an important step to reduce your debts.
Every family can work out an alternate source of income, either from a part-time job or by a running a small business.
You may opt for working as a tutor on a part-time basis or work as an agent to sell some financial products.
These kinds of job do not require any additional investments, and the best part is that these type of jobs are flexible in terms of time.
By that I mean you schedule when you work (and how often you want to work).
Step #4: Prioritize Your Debts and Pay Them Off The earlier you reach to this level, the better.
Once you work out your debt diet plan, start paying off your debts immediately.
You should give priority to the debts that cost you the most.
This usually means your credit card debts.
Try to follow innovative debt reduction options such as consolidation of the debts and refinancing your mortgage, etc.
These type of options will help you rapidly get out of debt.
Before refinancing your debts or taking drastic actions, you should meet with a qualified financial advisor.
They can guide and help you, as well as make sure that you are not making any major financial mistakes.
Step #5: Take Action Now that you know the basics of going on a debt diet, you only have one more thing to do - Take Action!
There are a number of different steps you will need to take, as suggested by financial consultants and advisors, to help you get rid of all your bad debts.
Here is the step-by-step process that is practiced while following a debt diet plan.
The steps you will take are:
- Step #1: Know What You Owe and Beyond
- Step #2: Cut Your Expenses
- Step #3: Find an Extra Source of Income
- Step #4: Prioritize Your Debts and Pay Them Off
- Step #5: Take Action
Step #1: Know What You Owe and Beyond It is very important that you know how much you owe.
But just as important, you need to know the total outstanding debt of your entire family.
In all likelihood you are not aware of the debts your spouse or children have, which may ultimately get added to your responsibility.
Therefore it is essential that you discuss your plan of going on a debt diet with your family and analyze the actual figures of your debt, including the interest.
Categorize your debt according to its type, such as debt owing to meeting day-to-day expenses, investments, education, etc.
Step #2: Cut Your Expenses If you owe a debt that costs your day-to-day expenses, work out plan to pay it down as soon as possible.
As you probably already know, it is not a good idea to manage your daily life on credit cards or personal loans.
Either you need to find some other sources of income or work out drastic cost-controlling steps to get out of the risky life style of borrowing money to live day-to-day.
- Follow the Debt Diet By Cutting Expenses When you are on your debt diet, you may have to restrain from a lot of the temptations and "little luxuries" out there that people in debt fall for on a daily basis.
I know it is difficult when you first start your debt diet to do this, but once you have given up those little indulgences that you really do not need, you will start to see your savings account rise and your credit card balances decrease.
That will make the short-term sacrifices well worth the effort.
- Get Extreme: Cutting as Much as Possible If your current debt situation is extreme, you might have to get extreme with your debt diet.
Let me explain.
Taking the above step one step further, you should try to put off all possible expenses.
You should not think of spending a penny for anything that is not a necessity for you.
Prioritize your needs as the most important, important and less important.
Meet all the "most important" needs, compromise on certain "important" needs, and ignore the "less important" completely.
Try this "Extreme Debt Diet" for one or two months and you will quickly get back on the right track.
Step #3: Find an Extra Source of Income This is an important step to reduce your debts.
Every family can work out an alternate source of income, either from a part-time job or by a running a small business.
You may opt for working as a tutor on a part-time basis or work as an agent to sell some financial products.
These kinds of job do not require any additional investments, and the best part is that these type of jobs are flexible in terms of time.
By that I mean you schedule when you work (and how often you want to work).
Step #4: Prioritize Your Debts and Pay Them Off The earlier you reach to this level, the better.
Once you work out your debt diet plan, start paying off your debts immediately.
You should give priority to the debts that cost you the most.
This usually means your credit card debts.
Try to follow innovative debt reduction options such as consolidation of the debts and refinancing your mortgage, etc.
These type of options will help you rapidly get out of debt.
Before refinancing your debts or taking drastic actions, you should meet with a qualified financial advisor.
They can guide and help you, as well as make sure that you are not making any major financial mistakes.
Step #5: Take Action Now that you know the basics of going on a debt diet, you only have one more thing to do - Take Action!
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