Make 2010 the Year to Becoming Debt Free

Imagine waking up one day having your utilities bills, your car payment, your credit cards and your mortgage fully paid. Just imagine the heavy weight lifted off your shoulders. It is nice to be debt free. You don’t just have to imagine it. Make it your resolution for 2010: Make 2010 the year to becoming debt free.

It’s not impossible to become debt free. All you need is a little discipline and a little management. You have to learn to properly manage your finances and you’ll be on the way to becoming debt free.

Below is a list of five ideas you can use to start on your road to becoming debt free.

1. Change your spending habit. What drove you to become deep in debt is your spending habit. You must know that if you spend more than you earn, you’re going to get into trouble. And when you find that your salary has depleted, you reach for your credit card. Bad move.

Of course, credit card companies want you to spend and spend and pay them later. They charge you exorbitant interest and they earn when you spend. Remember this. The money you spend when you use your credit card isn’t your money. It’s the credit card companies’ money and that means you’re borrowing money from them. And when you borrow money you have to pay it back or you’ll get into trouble.

First thing you need to do to change your spending habit is throw away all your credit cards. Don’t use them anymore. Cut them in two and throw them away. Only use cash. If you have no cash, don’t spend. This is so easy to say but can be hard to do. That is why you need all the discipline you can muster to change your spending habit.

2. Change your lifestyle. Next thing you need to change is your lifestyle. If you’re always dining out and watching movies, stop doing them. Eat at home. Watch television. Buy generic clothes. No more designer labels. Buy only what is essential. Remember only what you need and not what you think you want and must have.

3. Pay all your bills on time. When you get your paycheck, set aside an amount to pay all your fixed bills like your utilities, your rent, your car payment and so on. These are payments that you need to make every month. If you don’t pay them on time monthly, you’ll find them accumulated to such a staggering amount that you’ll be so stressed thinking about how to settle them.

4. Have a budget plan. Now that you’ve paid your fixed bills, you can start thinking about settling your debts. List down all your debts and arrange them from the smallest to the largest. Try to settle the smallest ones first and then tackle the bigger ones. In your budget you must set aside an amount for your own daily spending and the leftover can be used to settle your debts.

You might want to come to an agreement with your creditors about how to settle your debts. Once you’ve come to an agreement, make sure you follow through in a timely manner.

5. Savings. Don’t forget to put aside a little money for any emergencies. This amount doesn’t need to be big. You could maybe put aside about 5% from your paycheck to an emergency fund. This fund will help you in times when you’re in need of money urgently.

Changing your spending habits and your lifestyle is most important if you plan on becoming debt free. You also need to have a budget plan and a little savings set aside and don’t forget to pay all your fixed bills on time. Doing all these will hopefully make 2010 the year to becoming debt free.

Trick Yourself into Saving Money

It's tough making ends meet and even tougher to put money aside for emergencies. By getting into the habit of saving and following these easy tips for saving money you'll be on your way to a bigger bank account.

One of the best pieces of financial advice is to pay yourself first. After all, if you never even see the money in the first place, you won’t miss it. Even if you only save a little at a time, the savings add up if you continue month after month. Whether you are saving for the long term such as retirement, a new home, or college or to fund a one-time splurge like that Coach handbag you’ve been eyeing, you can use a variety of tools and tricks to save more money relatively painlessly.

Automatic deductions – Set up regular, automatic deductions from either your paycheck to your savings account (if available from your employer) or from your checking account to savings. As time goes by, these systematic transfers add up. In addition, you will quickly become accustomed to the lesser amount of your paycheck. When you get a raise, consider increasing the amount you save. For example if you have $50 transferred from your paycheck to your savings account each week, by the end of the year, you will have saved over $3000.

Bill yourself – If automatic transfers or deductions aren’t an option, bill yourself. That’s right, use your computer and a printer and print out a series of twelve monthly bills for the amount you wish to save. Place one “invoice” for each month in the file you use for your monthly bills. As you sit down to pay your bills, write a check to yourself and deposit it into your savings account.

Sign up for free bill pay – many banks now offer free online bill paying. This saves both time and postage. Once you set up your payees, add yourself as a payee too. When paying bills, don’t forget to pay yourself. At the very least, transfer what you would’ve paid in postage into your savings account.

Choose a higher yield bank account – If your savings is sitting in the standard savings account that’s linked to your checking account, chances are it is earning minimal interest. Today, many online banks offer significantly higher interest rates. $3000 in a typical savings account that offers 1% interest would earn $30 after one year. An account offering 4.5% interest would generate $135 in interest after one year.

Take the free money – If your bank offers an incentive program such as Bank of America’s Keep the Change program, enroll in it. This particular program helps you save by rounding up your purchases to the next dollar and transferring the change to your savings account. While you can do this yourself, the perk here is the matching funds. For the first few months that you are enrolled, the bank will match your savings!

Free checking – If you are still paying a monthly fee for your checking account, renegotiate or switch banks. Many banks offer free checking, while others will if you have your paycheck deposited directly. Use the savings to increase the amount you pay yourself.

Use sub-accounts to earmark your funds – If your bank allows it, you can set up multiple savings accounts and use these for individual savings goals. For example, ING Direct is one such bank that lets you do this. You could have one savings account earmarked for your annual property taxes, another for Christmas spending money, another for vacation, and another for emergencies. To top it off, ING Direct offers one of the highest interest rates you’ll find.

Save your five dollar bills – Whenever you get a five dollar bill as change, place it in a special place such as a separate compartment in your wallet or purse, a coffee can, or a piggy bank. At the time, it’s not a painful sacrifice. Over time, the five dollar bills add up.