Living the American Dream The Debt Free Way

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It seems like the American dream is more of a nightmare.

Well, maybe that's an exaggeration, but if the statistics are true and more Americans than ever are carrying over $100k in debt, then we've got to wake up. 

Debt is a serious problem. According to a recent Gallup survey the average American has 3.7 credit cards with a whopping 71% of us having at least one card. With a shocking 32% of us saying we live paycheck to paycheck, it's no wonder even responsible people can find themselves with a bad credit rating.

The hard part is, once your credit score drops below the 700 range, you'll find it hard to get lender willing to give you a chance to rebuild it.  Thankfully a few lenders are willing to help you by providing access to a bad credit loan.  Once you've gotten the access to the resources you need, check out a few tips below that you can use to get your credit score on the mend.

Limit your credit card use

Reducing your balance-to-limit ratio on your credit cards can increase your credit score. Try to keep your credit utilization to no more than 30% but the lower the better! Work to pay your credit card balances in full each month and shop around for the best rates on credit cards as your score increases.

Build financial security through investments.

With a low credit score, you're usually paying more each month in interest payments which makes it hard for you to save.  When my family hit hard times, one of the first things we cut was our investment in retirement and college funds.  We regret those decisions now, but it's never too late. Start with small steps in the right directions and before long you'll be able to see a nice little nest egg.

Review Your Budget

Yes, the 'B' word. 

Cut everything you can from your budget.  I mean everything.  Strip back your budget to the items you have to pay, and get the expendables to as little as you can. Cut out and turn off ALL non-essential-to-life items. These would be the “wants” like cable, manicures, dinners out, vacations, etc.

List Your Debts

All of them! It doesn’t matter if it’s a $3 library fee, or a $10 loan from Mom or even a $20,000 car loan write them down from lowest to highest. Take all of the money that you have from stripping back your budget to essentials and start putting it towards your lowest (dollar amount) debt paying the minimum only on the rest.

Paying off your littlest debt first will give you a sense of immediate freedom.  Once that debt is paid off take the increased money you now have and apply to your next biggest debt. It’s called “Snowballing” and it works well. The snowball gets bigger as it rolls. In the same way, the more funds that become freed up, the more you will be able to add to the next debt and so on.

Make a Plan

Plan out (on a calendar) how long it will take you to pay off each debt. Look for ways of increasing your income like selling unused items or even starting a business from home.  Build in little incentives in your budget for each debt paid off, (or if you have a lot of debt, or will take a long time, celebrate ¼ milestones, or ½ milestones on debts).  It will help you to see progress. Don’t go crazy though.  Only use $10, or $50 (whatever is reasonable) of your snowball debt money to treat your family (maybe dinner, maybe more grocery money, a movie, etc.) when you have hit a goal.  Your family will be sacrificing for a period of time so it’s good to reward them for short-term goals to keep the long goal in view. Planning for expenses will keep you from going overboard from feeling deprived.

With dedication, hard work, and sacrifice, you can get out of debt- quick! And then work a plan to stay that way.