How to become debt free begins with taking stock of your current assets and liabilities. You may be shocked to find out just how much you owe and just how little of value you own. With the recent declines in the housing and stock market, a good percent of Americans now owe significantly more than they own.

Once youve taken a personal finance inventory, the next step in how to become debt free is to make a budget. A budget often means making painful choices between what you want and what you need.

There are some things that are non-negotiable. Unless you are prepared to give up your home, making the mortgage payment is a necessity. If you want to become debt free, making payments on credit card debts, medical bills, and any other bills are mandatory.

Then there is the category of necessary, but with discretion. Any number of lifestyle choices fall into this category. For instance, it is necessary to eat. But, it is not necessary to eat out. It is also not necessary to buy expensive pre-packaged foods at the grocery store. By taking stock of the amount of money you need to spend to get healthy, well balanced but not extravagant meals, you can begin to live on a budget.

Another item that falls into this necessary, but with discretion category is utility bills. Using fans instead of the air conditioning and space heaters instead of central heat, you can lower your utility bills dramatically. You dont actually need 150 cable channels the basic package (or no package at all) will do. While cell phones have become a necessity for emergencies, it is not necessary to have the maximum plan with unlimited text messaging. Learn to do without.

Then there are the things that are not necessary. These things make life nice, but they are not essential to living. For instance, travel can be fun and life enhancing, but it is not necessary. One of the steps in how to become debt free is to take a hard look at the lifestyle choices you make and determine that you are going to cut out some of the luxuries for the time being.

If you want to know how to become debt free, there is a simple three step formula. First, pay for all of the things that are absolutely, positively necessary. Second, pay down your debt. Third, put aside some money for emergencies so that an unexpected expense wont knock you back into debt. Only then should you start spending money on luxuries again.

And thats how to become debt free.

The first thing you need to do to use a debt consolidation calculator is to gather all of your bills together. Make a list of the bill, the amount owed, the monthly payment, and the interest rate.

The next thing you need to do is figure out what kind of loan you will get to consolidate your debts. The two primary debt consolidation loans are the home equity loan and the personal loan.

If you have any equity in your home, the home equity loan is the way to go. You will take out a second (or a third) on your house and pay the bank back a lump sum each month. The primary advantage of a home equity loan is that you will get a lower interest rate. The primary disadvantage is that if you do not make the payments, it can send your house into foreclosure not a small thing these days.

If a home equity loan is not possible, your other option is to get a personal loan. Personal loans will have higher interest rates than home equity loans because they are not backed by recoverable assets. However, you dont stand to lose anything if you do not pay them off. You can always declare bankruptcy and discharge a personal loan.

Once you have determined which loan you will get and what the interest rate will be, you plug the information about your current debt situation and the information about the new loan into a debt consolidation loan calculator. The calculator will then tell you what your monthly payments will be on your new loan. It will also tell you the amount saved per month, the interest saved, and the amount saved over the life of the debt.

One of the advantages of debt consolidation is that you only have one bill to pay each month.

The other advantage is that generally, your payment is lower and is at a lower interest rate than your credit card bills and other debts were at. That means, over time you will pay a significant amount less in interest.

It is likely that when you take out a debt consolidation loan, your credit score will rise after about six months. That is because you will be more likely to have paid your debt each month and because you dont have so many little accounts. Note that this wont happen the first month because as you adjust your loans, you could actually see a small dip.

If you have a lot of high interest small bills each month, consider using a debt consolidation loan calculator to see if consolidation makes sense in your particular situation.

A free debt consolidation service can negotiate with your creditors to lower the interest rate and even sometimes reduce the principle. The credit card companies know that if they do not work with you, you might consider the option of bankruptcy in which case they receive nothing. Thats why they work with the consolidation company.

Once the bills are at a manageable level, you make one payment to the free debt consolidation service. They, in turn, pay the negotiated rates to all of your creditors.

Having lower principle and/or interest rates is one advantage to the service. Another advantage is the one payment policy. You may develop better credit as a result of entering such a program.

Once you get into a consolidation program, you should begin to see your credit scores rise. Thats because you will be paying off all of your debts on time each month. You will probably find it easier to keep track of one debt rather than many.

To find a free debt consolidation service, you have many options. You can consult the phone book or the internet for listings.

You should also ask from recommendations from friends and neighbors. They can tell you about good experiences they have had as well as nightmare scenarios because those too exist.

Your church may offer a free debt consolidation service or your pastor may know of ones which he or she can recommend. Because the church is in touch with the larger non-profit community, this may be the best avenue for you to pursue.

If you are looking for a free debt consolidation service, stay away from for-profit companies. Many of these services are really scams. And, even the legitimate ones will tack fees onto their services in order to turn a profit. That doesnt mean that every for-profit debt consolidation company is bad, but there are so many community based non profit services, that it makes a lot more sense to go with one of these.

Whether you choose a non profit or a for profit free debt consolidation service, you should periodically check with your old creditors to make sure that they are receiving payments from the services. There have been horror stories about companies skimming off the money and not paying the bills. This leaves your credit in even worse shape, even though it was the company at fault through fraud.

Being in debt is never fun. Getting out of debt is hard. But a free debt consolidation service can help you get solvent again.

The first step in debt free management is to make a listing of your assets and liabilities. Hopefully, you wont be surprised by what you learn when you make this list, but many families are shocked to learn just how little net worth they have.

Next, you need to make a budget. The budget should cover the essentials, including debt payments. It should have a certain amount set aside each month for a rainy day. Only with anything left over should you use to buy non-essentials.

The key to debt free management is to realize just how little falls into the category of essentials. If you have a home and dont want to move, your housing payment is an essential. Many homeowners are not in a position to move because they owe more than the home is worth.

There are other things that fall into the category of essentials, but there is some flexibility in the budget. For instance, calculate how much you are spending on food including groceries and meals out. Most families can cut this amount in half by foregoing restaurant meals and pre-packaged foods at the grocery store. You will probably find that you actually eat healthier meals on a slimmer budget.

Other things to look for in this category include the amount you are spending on utilities, cable, and cell phones. While you need some level of each of these, you may find that there is a lot of waste. Tell your kids that they have to stop texting and cut the plans so that you use cell phones for only the basic necessities of life.

Make sure that you include debt service payments in your essential payments, as the whole goal is to get out of debt. In fact, this is one area where you should splurge. Try to pay double on any revolving credit payment and at least $100 a month extra towards your home mortgage. When you get a bonus at work, a tax return, or a gift of money, consider putting half toward the debts you have.

The next step in debt free management is to put something away for a rainy day. Too many people get into trouble with debt when something goes wrong. Even with health insurance, an unexpected medical emergency can cost you thousands of dollars. An expensive but necessary car repair can send you back into credit card debt if you dont have a savings cushion.

Finally, if you have anything left, you can use it on the non-essentials. Recognize that when you adopt a debt free management budget that there probably wont be much to go to this category at first. You will see a diminished lifestyle at first. There wont be any trips for a while. Youll have to live with last years clothing styles and any new clothes will be bargain basement or thrift store. Eventually, though, you will actually have more money for extras as you wont be paying on high interest rate debt.

If you are considering a debt free management budget, recognize that there will be sacrifices at first that pay off over the long run.

There are two types of debt consolidation loans. The first is the home equity loan. This means that you take out a second, third, or even fourth loan on your home. A home equity loan generally offers better terms than does an unsecured debt consolidation loan.

But these days, home equity loans are hard to get. Not only have the credit markets dried up, banks are also being more discerning about how the loan against homes. It used to be that you could get 125 percent of the value of your home in loans. Today, banks often don’t want to lend more than 80 percent.

And, because the home markets have declined, you may be in a situation where you already owe more than the home is worth. That means that you’re looking at an unsecured debt consolidation loan to take care of your debts.

An unsecured debt consolidation loan will affect your credit. At the very beginning, your credit scores may dip as you pay off and close accounts and receive a new high balance loan. But, if you make the payments on your consolidation loan faithfully, you should see an overall rise in your credit score within six months. The increase could be considerable.

There are two ways to obtain an unsecured consolidation loan. The first is to look at debt consolidation loans through traditional lenders. You can search the internet for free debt consolidation loans which will give you a number of quotes at one time, or you can go into the bank where you do business and ask to speak to a representative about a signature loan for the purpose of debt consolidation.

The second way is to work with a debt consolidation company directly. They will arrange to have all of your debts paid off. You will then make one payment to the company per month. There are non-profit and for profit debt consolidation companies out there. Both have merits. However, there are some unscrupulous for profit debt consolidation companies, so do your homework before signing any papers.

Because the loan is unsecured, you do not put up any collateral. This means the loan can be received fairly quickly as the bank does not have to value any assets.

Traditional banks will want to do a credit check before they lend you an unsecured debt consolidation loan. If you have late payments on your multiple debts, this can be problematic.

Debt consolidation companies, on the other hand, are used to seeing people in your financial situation, and have plans and policies for almost every person. You should contact a debt consolidation company as one of your options when trying to secure an unsecured debt consolidation loan.

There are four ways to go about consolidating credit card debt.

1. Take out a home equity loan. A home equity loan is a second, third, or even fourth against the value of your home. You pay off all of your credit cards and secondary debt and make one payment to the bank. There are a number of advantages to a home equity loan to go about consolidating credit card debt. For one thing, home equity loans are about the lowest interest rate loans you can find. Another reason is that if you have equity in your home, these are fairly easy to get. But, be forewarned that if you fail to pay the debt in full each month, you could risk placing your entire home in jeopardy of foreclosure.

2. Take out a personal, or signature loan. A debt consolidation loan is often available from your bank or from a lender affiliated with debt consolidation quotes that you can get for free online. Again, you will pay off all of your high interest smaller loans and make one payment to the bank. While the debt consolidation loan will have a lower interest rate than your high interest credit cards, it will not be as low as a home equity loan. This is because there are no assets backing up the loan. You can also discharge a personal loan in bankruptcy, something you can’t do with a home equity loan.

3. Secure a credit card with a large balance. If you have several small credit card bills, you can sometimes get one low interest credit card and transfer all of the balances to it. Be sure that you close out all of the small cards or else you may be tempted to use them and then have twice as much debt. If you have decent credit, you may be able to get a credit card with a large credit limit. But, make sure that the new card has a lower interest rate than all of the small cards because that is the whole point of consolidating credit card debt.

4. If you are unable to go about consolidating credit card debt by working with lenders or credit card companies directly, go to a debt consolidation firm. These firms work with the credit card companies themselves. Often, they are able to negotiate lower interest rates or even get the principle reduced. Then, instead of paying multiple bills each month, you will make one payment to the debt consolidation company. Keep in mind that there are for profit and not for profit debt consolidation companies. Some of the for profit companies have turned out to be very disreputable. So, do your due diligence before singing up.

You have many options for consolidating credit card debt. You want to choose the one that gives you the best combination of lowest payments per month and lowest overall interest payments over the life of the loan.

Keep that image in your head of what becoming debt free would mean, because you are about to make some hard choices. If you don’t keep the freedom image, you may want to give up when it seems that you are the only person you know who is not going on a cruise this year or who doesn’t upgrade to a 60 inch plasma television.

We live in a society where we buy now and pay later. Unfortunately, that has lead to a situation where everyone is in debt. The recent constriction in the credit markets has meant that people who used to be able to get easy credit are having to tighten their budgets.

Becoming debt free starts with taking stock of what you have and what you owe. Your first order of business is to start living within your means.

You must make the minimum payments on your debts as well as provide food, shelter, and clothing for your family. There are other essentials such as transportation and utilities.

But within each of these categories, there are ways to cut the fat out of your budget. For instance, most families could halve their food budget just by cutting out the restaurant meals and pre-packaged foods at the grocery store. Sure, this means actually cooking homemade meals. But I’ll bet you find that the meals you make at home are far more nutritious than the ones you’ve been eating. And, they’ll keep you within your budget too.

While cell phones are certainly a necessity today, having the package with unlimited calling and texts is not. Having cell phones for emergencies and quick calls is one thing, having cell phones as an appendage to the ear is another.

Even utility bills can be slashed if you are willing to open the windows, use fans, and cut the air conditioning in the summer and use space heaters and wear sweaters instead of central heat in the winter. These choices are smarter for the environment as well.

Will you feel some measure of deprivation while becoming debt free? That is inevitable. Your kids may not quickly adjust to their new, more Spartan lifestyle. They may not understand why you’re no longer handing them $20 when they want it.

But, over time, you can teach them good habits about money. You can show them with your own actions that being financially responsible is emotionally a healthier choice. By compensating for “things” with quality time, you will win them over.

So, keep in mind what becoming debt free really means to you. It will make the hard choices you are about to make seem worth it all.

Being debt free today means no mortgage, no auto loans, and no credit card bills. It means that everything you earn goes into your pocket for spending this month or for saving for the future.

In today’s consumer culture, that doesn’t seem likely for most people. In fact, most Americans dig themselves deeper in debt each and every month.

But, if the current economic slowdown has shown us anything, it is that we have to become more responsible consumers.

People bought bigger houses than they could afford assuming that the housing market would rise forever. They thought that when their interest only loans ran out and they would have to pay the principal, they would just refinance at a new, lower rate. They were wrong, and they have suffered foreclosures in massive numbers as a result.

But it is not just the home market where irrational exuberance took hold. People went out and charged up debts like there was no tomorrow. In fact, after the 9/11 attacks, President Bush even encouraged people to go out and spend to show that the terrorists couldn’t damage our economy.

He passed stimulus bills which just put the debt burden on our children. He gave us money today which our children and grandchildren will pay back with interest.

Perhaps that was necessary given the environment we were in, but now it is time to look at other options. In short, we should look at being debt free today.

The first thing you should do is make a budget on two pieces of paper. The first page “A” should include all of the things you have to pay. Be judicious on this page. The “A” page should include non-negotiable items such as your house payment, credit card loans, car loans, etc.

You will also include the things you absolutely need on the “A” page. For instance, you have to have food to live. But, how much do you have to spend on food? In reality, you probably can find ways to feed your family on a lot less money. Eating out is not an “A” item. Steaks are not an “A” item.

Clothing is another area where you can save money. While you need basic clothing, thrift store prices find their way into your “A” budget whereas designer jeans go on the “B” page.

Your “B” page includes all of the extras. You may find that there’s not a lot left over for the “B” page at first when you are trying to live debt free today. But, over time, you will find that you can afford more things on the “B” page.

When you get a bonus at work, you can add it to the items on the “B” page. When you get a tax refund, it can go to “B” items. Any increases in salary or second jobs can fund “B” projects.

If you are serious about living debt free today, you will take a careful look at your budget. You don’t have to buy into the consumer culture that plagues America. You can chart your own course. In other words, you can be debt free today.