Debt Free in 5 Years: How to Design Your Personal Financial Plan

Getting into debt is just too easy these days, and getting out is akin to picking your way through a field full of nettles, thorns and brambles. However, becoming financially secure is dependent on your being able to get yourself out of debt, and to do this you need to treat your income, your expenditures and your debt as you would a business. You need to set business goals, create a plan which defines your future lifestyle - one that guides you towards that better financial future.

Renew Your Mind Set

One of the biggest 'thorns' to plague your debt-free lifestyle is your mind. Overcoming the tendency to use debt to solve your consumer needs can be as difficult as overcoming an addiction. However, if you think back to some 40 years ago, you'll see that households of many different income levels managed to live, raise and educate children and even find moments for having great family fun. You must train your mind to realize that it isn't impossible or painful to live without debt.

Decide to Go the Distance

You need to decide to get out of debt and this takes a real commitment. You need to make a pledge to yourself and your family that you are going to be totally debt free by the end of a five year period.

Stop Using the Credit Cards

According to Watson Inc, consumers can spend up to 50 percent more on credit purchases than when paying for items with cash. The only problem is that we have become so accustomed to paying with credit that we find it difficult to come up with large amounts of cash for high ticket items. There are a couple of solutions to this problem: layaway plans and debit cards. You can deposit money with a store to purchase items, or you can save a certain amount each month for that high ticket item you want.

If you are already caught in the debt trap and have substantial balances on your credit cards, you should stop using them and work at eliminating the debt.

Create a timeline for your 'get out of debt' plan and decide on the amount you are going to pay each month. Choose the card with the higher balance and make substantially larger payments on this card while continuing to pay off the minimum balance on the other cards. If needed, find a second job or additional income so you can make larger payments and eliminate the balances faster.

Find a Lower Interest Rate

You may be paying high interest rates and not even know it. Some consumers are paying as much as 29.99 percent in credit-card interest - in spite of never making a late payment. Find a credit card with lower interest rates to transfer the balance to. You can find low interest credit cards on websites like creditcards.com or bankrate.com. Once approved, pay off the high-interest rate credit card with the new one and make monthly payments on that. This can mean savings of more than 10 percent.

Make the Sacrifice

This is not an easy process, and you will have to make sacrifices. However, if you look at your pay-off plan as a spending plan and realize you have more control over where your money goes, you'll start to love living below your means. You may find the money from these extras goes a long way toward reducing your debt. These can include:

• Cable TV
• High cell phone plans
• Gym memberships
• Salon visits
• Restaurants
• Movies
• Shopping


Create Liquidity

Another weapon you can use to fight off debt is to increase your liquidity. Start an emergency fund and keep about 6 months of expenses on hand. Calculate the percentage you need to save each month to have this liquidity in a savings account at the end of a 5 year period ( you should actually have more at the end of this time period.)

Save for Those Large Expenses


Who says you can't pay cash for your next new car? Why wait until your car runs down before you financially prepare for the event? With your current income determine the amount you need to set aside in a savings account to buy a new car in five years. Diligently put that amount away each month. This way, you won't have to get a loan and make high interest rate payments.

Reduce Your House Expenses

Take actions to reduce your household expenses. Review the services you use to see if other services can offer you the same at a reduced price. Consider all of your services and eliminate those you use infrequently or those you could live without. It may surprise you, but despite having large amounts of money, most millionaires run frugal households. Actually, according to studies, 49 percent of these households use coupons compared to only 37 percent of the standard households.

In Closing

It is possible to be debt free in under five years, and when you pair this with consistent investing, you can build significant wealth in the near future. If you're willing to go against the typical consumer indoctrination and make a few sacrifices, you will control your financial future, pay less in debt and fees, and be prepared for emergencies.

© Copyright 2010-2015

Back to MH Home