How to Eliminate Debt & Create Wealth

Eliminating debt is one step toward building wealth.

Eliminating debt is one step toward building wealth.

The only way not to incur debt is not to spend. The strategy might sound simple enough, but it isn’t quite so easy to put into practice. Eliminating debt and acquiring wealth is a multistep process that requires planning, persistence and a lot of effort. Improving your financial situation may require patience and making some lifestyle changes in order to get positive results.

Step 1

Take a close look at your current financial situation. Ignorance about your finances can cause you a lot of trouble when it comes to debt. Michael McAuliffe, president of Family Credit Counseling Service, points out that a good number of people who seek debt management services really have no idea how much debt they actually owe. Begin by requesting a free copy of your credit report. Carefully examine all the credit accounts you have, paying special attention to any that are charged off or past due.

Step 2

Develop a plan to begin paying off your debts. Set up a budget so that you can determine how much money you can pay on a debt in addition to what is due each month. Decide whether you want to begin working to pay off debts with the highest balances or those that carry the highest interest rate percentages. Paying off higher balance cards will get you faster results, although paying off the card with the highest interest rate first could save you some money. Set specific goals for how soon you want to pay off each debt when creating your plan.

Step 3

Pay more than the minimum amount due each month. Personal finance expert Lynnette Khalfani points out that you will never get out of debt if you only make the minimum payments due, especially when it comes to credit card accounts. When paying credit card debt and other debts with high interest, make an effort to pay two or three times the minimum amount due if your budget allows.

Step 4

Negotiate any bad debt you have so that you can rid yourself of it once and for all. Creditors will often accept payoff amounts for significantly less than the amount due as long as you attempt to make reasonable payoff arrangements. Even after an account enters into collections, work with the agency to come up with a fair payoff arrangement.

Step 5

Save up enough money to cover at least three months of all your household and family expenses. You can easily fall into debt if you find yourself out of work and without an income, even for just a short while. Plan ahead by setting money aside that you can use if you have no regular income for a few months.

Step 6

Take some risks if you want to build your wealth. Make investments or start a new business venture that seems risky. It’s the higher risks that can pay off well in the end. Most people don’t become rich by consistently taking the "sure thing" route. Sometimes you have to risk losing money to gain higher returns on your investment. Just do your homework first.

Step 7

Invest in the real estate market. You don’t have to wait until the market is good to invest in something that can have big payoffs. If you aren’t looking for a payout on your investment for several years or more, it isn’t necessary to wait until the market is good to begin investing.

Step 8

Talk to other people who have eliminated their debt and become financially successful. These individuals are a valuable resource if you want to do the same. Asking for help shows that you are no dummy. You can learn a lot by seeking advice from others who have reached their financial and investment goals.

About the Author

Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.

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