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Getting debt free is not an easy process especially when you are buried deep in debt. However, it is possible to give some steps towards debt freedom by following some easy tips while learning how to borrow smartly:

1) Smart Borrowing

For an important purchase like an expensive home appliance that has stopped working, you need to think whether you will be able to pay it in full, repay it in a couple of months or you will need more time. Then, compare what it will cost you to pay with credit card and whether you can obtain a personal loan with a lower rate. Chances are that a personal loan is a far better option.

2) Work Hard On Your Monthly Budget

It is important to include all your expenses even if they are not monthly, it is a smart idea to divide any yearly expenses by twelve and spread the payment on your budget so you can set aside the money and avoid using it. Keep all expenses within the budget's guidelines and put money aside for any unexpected expenses. Make sure your income covers for all the expenses accounted and only after paying all and setting aside a reasonable amount for emergencies use the surplus for other purposes.

3) Solving Multiple Credit Card Problems

If you have multiple debts on your credit cards, be smart and concentrate on repaying the credit card that has the highest interest rate first. If you have credit card balances that exceed 50% of your credit limit, you should also reduce them prior to repaying the highest rate card to stop your credit score from dropping. Only then, start by repaying your highest rate card but never forget to pay at least the minimum payments on the rest. Once the highest rate card balance is zero, do the same with the next most expensive credit card.

4) Don't Close Accounts Too Fast

Some might suggest to close unused accounts. This is not such a good idea. First of all, open accounts are good for your credit as they provide a longer credit history that recently obtained accounts. Closing too many accounts altogether will have a negative impact on your credit report temporarily. Keep your less expensive accounts (credit cards, lines of credit, etc.) but don't close the others altogether. Take your time instead.

5) Cash Is Better

Using cash instead of your credit cards will prevent you from purchasing unnecessary things as you will have a limit that you will perceive when you open your wallet. Having a single credit card and using it only for emergencies is the smartest thing to do.

6) Cut on Your Expenses

There are many expenses that are not strictly necessary like dining out everyday, going to the movies each week, purchasing expensive presents, etc. This doesn't mean that you need to change your way of life but given that you are in debt, it is important to be reasonable when spending.

7) Negotiate Rather Than Consolidating With a Single Loan

It is a good idea to negotiate with your creditors new repayment programs rather than obtaining a single loan to consolidate all your debt. Chances are that with a new loan you won't get such advantageous terms and you will need to spread your payments over a long term thus increasing your overall debt even if you reduce the monthly payments. Besides, having a single payment may tempt you to take more debt. Learning money management and negotiation skills is better than consolidating. If you can't do so on your own, contact an agency. There are non-profit organizations that can help you.

Learn more about this author, Lara Sawyer.
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