Prudent Steps to Get Out of Debt and Start Building Wealth

Who does not crave for wealth? Everybody I guess. But those you are stuck in a mammoth debt, their dream of building wealth often go in vain. However, what if I say, with a little discipline and a few tricks one can transform his overwhelming debt into wealth. It might sound simply outrageous but it is true that with time and consistent efforts, one can transform debt to wealth and can save for his retirement, children’s education and other future expenses. Nevertheless, it would be unfair to expect an overnight change and drastic transition from debt to wealth; it is only if you stay patient and persistent in your efforts you can attain this coveted result. Before you start the wealth building processes if required opt for a debt consolidation service and relieve your monthly payment to some extent. Read on to know a few steps that smoothen the journey from debt reduction to wealth creation.

Step #1: Spend less, save more

Your first lesson is to remember spending more than you earn trailed by debt and earning more than you spend is rewarded with wealth. Get a clear estimate of your monthly income and expenditures. For this, take into account the past records of your bank statements, credit card bills and checkbooks. Deduct your expenses from your income and make sure you save the leftover each month as your personal monthly cash flow.

Step #2: Priority list

Now that you have a clear idea of your spending, categorize your expenses between essentials and non essentials. Electric bill, utility bills, monthly mortgage, groceries and your minimum credit card payments all come under essentials whereas expenditures for entertainment, drinking or flaunting purpose come under non- essentials for the time being and therefore you must curtail them as much as possible. Sum up your essentials this time and subtract the total from your income. This extra money should be devoted to pay off you due bills every month.

Step #3: Time to pay off

Slay your bills in every possible way. Credit card has the highest APR than any other unsecured debts. You should first stop using credit cards and start using cash and debit card instead. If possible Get a 0% introductory rate credit card and consider a balance transfer. Turn down the offers of higher credit limits right away. If you have private vehicle, then plan your routes to lower gasoline expenditures. A big reduction in the annual mileage can ensure a reduction in the premium charged by the insurance company as well. Start saving in rent, utility bills and all sorts of home related monthly bills. Once you embrace frugal living you will start to see a reduction in your monthly bills and eventually in the outstanding amount you owe. This is just the beginning; it will continue to accelerate even further if you consistently pay more in future.

Step #4: Accumulate Wealth

If you start reducing your loan amount, it means you have accomplished half of the task already. Eventually you can generate more disposable income and accumulate wealth. You might have heard about the term leverage which is like getting a loan to buy something that will generate future income. It is all about finding some income generating assets like rental properties, investments, stocks, starting a new business or buying an existing one. You can simply purchase an index fund that mimics the S&P 500 and can consistently contribute to that fund on a monthly or quarterly basis. The best part is that you can evade paying tax and can save a considerable amount here. Make sure you have a good credit rating and sound knowledge in the respective subject to make the most of this wealth building strategy. To conclude, depending on your current financial status, it can take a little longer to come out of the debt maze and actually start the wealth building procedure but if you remain determined to make your dream of wealth creation a reality, nothing can get in the way.