Debt can keep you up at night. Reducing debt is simple, but it can take a long time and it isn’t any fun. Once you realize you have a challenge, it’s often too late to solve the issue quickly and easily. But you can eliminate your debt, strengthen your finances, and become a stronger person in the process.
Begin eliminating your debt immediately:
1. Identify your starting point. There’s a good chance that you don’t know how much debt you actually have.
You might have a vague idea, but you don’t know the details. Dig out all of your debts and make a list. Include the name of the debt, the amount, and the interest rate.
2. Cut your expenses. If you don’t need it, cancel it. And anything you don’t currently have, you don’t need. Eliminate all unnecessary expenses and spending. Put your money where it counts – toward your debt. Consider cancelling your cable, carpooling with friends, and eating Raman noodles.
• Have you checked your insurance rates lately? You might find a better deal.
• Use coupons.
• Drink water.
• What other ideas do you have?
3. See if you can get a lower rate. You might be surprised to find that many credit card companies will lower your rate if you just ask. Even one or two percentage points can mean a lot of money on a large debt.
4. Take a look at balance transfers. You can greatly reduce your interest rate if you transfer your balances, but there’s a catch. You only have so long to pay it off. Otherwise, you’ll be hit with a huge interest penalty dating back to the date of the balance transfer. Balance transfers can save a lot of money, but you must be careful.
5. Prioritize your debts. There are two common options available to you. First, you start paying all of your available funds toward the smaller debt and pay the minimum on everything else. When that debt is paid off, you go after the next debt in line.
• That method is the most satisfying, because you see progress more quickly and the momentum builds as you pay off debts.
• This method is more effective. Pay off the debt with the highest interest rate first and pay the minimum toward everything else. You’ll realize the greatest savings this way. The debt with the highest interest rate is costing you the most, so deal with that first.
• In the end, the most important factor is choosing a method and getting busy. Just choose.
6. Avoid making a bad situation worse. Stop creating more debt! Until your finances are under control, keep your credit cards out of your wallet or purse.
7. Sell your unwanted items. They aren’t doing you any good, but they can be put to good use. Sell those items and apply the proceeds toward your debt.
8. Stay motivated. Think about how wonderful it will be to finally be debt-free. It can be easy to lose your enthusiasm while you’re home on Saturday night watching basic cable. Keep the future in mind and stay the course. Also consider the likely outcome if you continue to spend and create more debt.
• Join one of the online forums related to debt reduction. You’ll find plenty of support and can swap stories.
9. Avoid repeating your mistakes. Once you’re debt-free, stay that way. It’s easy to fall into the same trap all over again. Remind yourself how awful it was and vow to never go back.
Get started and take back your financial future. Excessive debt is a quick way to destroy your finances. Take a deep breath and get busy. Cut your expenses and pay as much as possible toward your debt.