How To Become Debt Free And Increase Your Financial Security*

*This is a collaborative post*

Unlike Rusty Tweed I'm no financial expert, but I have learned a few bits and bobs over the last few years. I'd go as far as to say I've become a tad obsessed. I now read literature from various websites learning how I can improve my own situation, how I can create a more financially stable future for myself. I'm sure the majority of us dream of being more financially secure don't we? Being financially secure can bring about peace of mind and will most certainly reduce our stress levels. But the question on the lips of many is how do we get there?

Pay Off Debt First. Becoming financially secure is going to be impossible whilst you have debts. The first thing you need to do is look at what debts you have and work out the best way to pay each off.

Borrowing more money is not the answer. Sometimes in trying to manage our own finances we actually make life harder for ourselves. For instance, are you paying off your debts in the best way possible? Or do you share out money equally between your creditors? I was always advised to tackle paying off debts with the highest interest rate first.

Sometimes consolidating all your debts into one monthly payment can work but this is dependent on your own circumstances. Speaking to someone at your bank or even a financial advisor might be a wise idea, especially if you've reached a point where you cannot physically afford your re-payments. You might even need a different sort of help in the form of a debt charity such as Step Change.

Probably the hardest part of moving forwards when in a dire financial position like this is accepting that you need help from an outside source. Many, like myself, try to bury their head in the sand, living from pay check to pay check, paying what they can in the hopes that it will all go away. But believe me, it only gets worse when you don't deal with it head on.

The second part in the path of acceptance is acknowledging that it will take time to become financially stable again, and that sacrifices will need to be made. Sure I've had to cut back on many luxuries, in fact the only luxury I really splash out on now is a bottle of wine a week. It isn't always fun but being able to see light at the end of the tunnel is worth it. Living frugally in the short term while I pay off my debt means I'll have a better financial future in the long term.

And What About When I'm Debt Free? What Next?

Build An Emergency Fund. Once you're clear of all your debts you can and should take a huge sigh of relief. (And then of course celebrate.) Once you've done that you should start working on plans to build up your savings. You should definitely at the very least build an emergency fund incase you should ever get sick or lose your job. How many of you out there between the age of twenty and thirty actually have a backup fund incase this happens? Nuff said.

Save Or Invest. You can save your pounds in a good old money box but why not consider investing your money in a savings accounts, in premium bonds, in a tax free ISA or even in stocks and shares? I'd personally speak to a financial advisor or at least do your homework before making any major decisions. Investments can be a risky business when you're getting into stocks and shares so you need to know the ins and outs before you take the leap. A savings account means your money will be safe, but depending on the interest rates it might not make much money back. Premium bonds have been going for years. You don't earn any interest with these but you won't lose anything either. Instead you have the chance of winning a monetary prize each month. It's not gambling because there's actually no risk involved and you can request your money back as and when you like. I know of people in my family who have won small amounts this way. Nothing life changing but it's still more than they would have got if their money was in a traditional savings account.

Cut Back on your spending. You'll have become accustomed to living more frugally whilst paying off your debts so why change the habit now? Of course you can afford to indulge a little now you're debt free and you should, but be sure that you also put some money away each month. No matter what anyone says, there's usually room for cutbacks. Whether it be coffee on your way to work every morning, cigarettes, wine, or glossy magazines. Once you make a list of your outgoings and asterisk which of these are actually luxuries opposed to being necessities, I'm sure you'll find the odd bit of change to save. Remember that pennies turn into pounds with time and patience.

Avoid Throwing Money Away. In fact avoid anything that can drain your finances. If you've been in an awful financial position before, you do not want to go down that road again. Do not gamble. It can be addictive and once you're on that slippery slope it's almost impossible to get back off it.

Avoid Borrowing To Spend. Avoid credit cards, store cards and signing up for online shopping accounts. These are all big no, no's. In my opinion they cause more trouble than they're worth. There's a saying that if you can't afford it, don't buy it. So if you can't afford it with your well earned hard cash, consider going without or at least saving up for it. Investopedia advises to only borrow to invest, never to finance a lifestyle.

Keep A Track. Log your incoming and outgoing money. A financial advisor I once spoke to said I should get used to checking my online banking once a day. This way you'll be able to see exactly what you have in the bank and you will also notice anything untoward should that happen.

Look At Your Pension. Are you really getting the best out of it? If not, again, speak to someone who can advise. I know it can seem boring and pointless when you're still so young but these things do need to be considered.

Increase Your Earning Potential. Speaking of being young, if you've still got youth on your side and you've no responsibilities, now is the time to consider your job prospects. What are they? What is your earning potential where you currently work? Although daunting and not entirely risk free, making the move to another firm or going back to train in a new field of expertise could land you a better paid job in the long term.

There's plenty of information out there on how to improve your financial situation. You just have to go looking for it. The above is just a fraction of what I've learnt over the last twelve months.

On a final note, according to Investopedia, those that plan for the future end up wealthier than those who don't. That's food for thought hey?