Contents
Understanding Debt
Do You Need to Get Out of Debt?
The Process of Getting Out of Debt
How Debt Consolidation Works
How to Consolidate Your Debts
How to Refinance or Get a Home Equity Loan to Get Out of Debt
How to Use a Credit Counseling Service to Get Out of Debt
How to Use Debt Settlement to Get Out of Debt
Should You File for Bankruptcy?
How to Avoid Getting Back in Debt
How to Build Wealth After Debt
How to Repair Your Credit After Getting Out of Debt
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How to Build Wealth After Debt
The best way to prevent falling back into debt is by making sure you have enough money to cover unforeseen expenses. Most financial advisors suggest saving up an emergency reserve of cash equal to about six months’ worth of your salary. To establish an emergency reserve, you need to learn the basics of how to build wealth.
The Wealth-Building Process
Building wealth involves three main steps:
- Earn money: The amount of money you can save and invest depends on how much you earn. Your goal should be to earn enough money to cover all your monthly expenses and provide a surplus of at least a few hundred dollars.
- Save money: Set up a savings account through your bank. Your account should have no setup or monthly fees and should pay interest. You should then deposit whatever amount of money you have left over each month into your savings account. Withdraw money from your savings account only for emergencies, such as unforeseen medical bills.
- Invest money: As your savings grow, you’ll soon be able to buy investment products such as index funds and ETFs (explained below), which can grow your money at rates much higher than savings accounts will.
How to Get Started Investing
To begin investing, you’ll first need to set up an investment account, also known as a brokerage account. Once you’ve saved $500–1,000 or so (generally the minimum required to set up an account), contact a major financial services firm, such as Vanguard (www.vanguard.com) or Fidelity (www.fidelity.com), to set up an account.
Which Investments Should You Buy?
In general, beginner investors should not buy individual stocks and bonds. Exchange-traded funds (ETFs) and index funds are better choices. These types of investments allow you to buy a large assortment of other individual
investments, such as stocks or bonds, through one low-
cost fund or ETF. As a beginning investor, consult your financial services firm for guidance on which funds or ETFs to buy before you begin investing. (For more guidance on getting started in investing, see the Quamut guides to Investing Basics, ETF Investing, and Mutual Fund Investing.)
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