How to Increase Disposable Income

Imagine a life with no debt, no credit card payments, car payments, or even a house payment. Is that even possible? Absolutely! But these things do not happen by accident. If you want to become debt-free, you need to begin right now. Getting out of debt requires self-discipline and good judgment.

Increasing your income or lowering your expenses can help you become debt-free. Increasing your income is a long-term goal; however, lowering your expenses can begin right now. You can do this by lowering your insurance or consolidating your debt.

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One way to consolidate your debt is to take out a home equity loan and use the cash to pay off all your other liabilities. Taking out a home equity loan allows you to lower your monthly payments and convert non-deductible interest into deductible interest. Sounds great, right?

Well, before you take this step, you need to understand a common problem. Unfortunately, many consumers use equity from their homes to pay off high-interest credit card debt; however, they do not fix the underlying problem�a lack of discipline, leading to frivolous purchases. If poor spending habits are not curbed, credit card debt will continue and home equity will become depleted.

Perhaps this has already happened to you. If so, changes can still be made to improve your financial situation. It helps to begin by surveying all your debt. Many families do not know how much debt they actually have. This is why it is important to develop a debt list. Begin by creating a spreadsheet listing all your creditors, required monthly payments, balances due, scheduled pay-off dates, interest rates and payments past due. Then add and total the monthly-payment and balance-due columns.

The next step is to begin working on a repayment schedule. This process will help you become deliberate in paying off your debt. First, attempt to make the minimum monthly payments on all your debts. Then use any remaining money to begin paying extra on the debt with the smallest balance. Once the smallest debt is paid in full, begin allocating that money to the next smallest debt. Continue this process as you eliminate each debt one by one.

If you're saying, "There is no excess money", perhaps you are right or perhaps you just need to make some radical standard of living changes. List your expenditures and begin asking yourself if they are essential for your survival. Do you have cable television, caller ID, cell phones, more than one car or other unnecessary items that could be eliminated? How often do you eat out? Perhaps you can start packing your lunch.

Getting out of debt really does require self-discipline and good judgment, but you can do it. Good luck!