Tips For Reducing Your Debt
When you are in debt, it seems like you are in a hole too deep to dig out of. That isn’t true, though you are going to have to practice discipline you might not be used to practicing.
Reducing your debt is a lot like losing weight, except in the reverse. You are going to have to bring in more money than you spend. If you don’t have new sources of income than when you ran up your debt, that means you are going to have to cinch your budgetary belt. That may not sound fun, but if you practice discipline for a little while, you can get out of your debt hole.
Here are some steps to reducing your debt.
Know the Damage
It might be painful to face up to the truth, but you need to know how bad it is. It’s natural for people in debt to ignore their problem in the short term, avoiding the unhappy truths and try to go on living as we did. But if you are going to start making changes, you have to know exactly how much debt you are going to have to wipe out.
So get out your credit card invoices, your tax statements and any other debt bills you might have. Add these up and figure out the full scope of your debt.
Stop Charging the Credit Cards
Cut up all but one or two of your credit cards. Before you start paying off your debts, you’re going to have to stop running up new debts. I generally suggest that people should get rid of all their cards, but it’s pretty common that people want to keep one or two “for an emergency”. This is fine if you mean it, but do not make frivolous charges on your credit card. If you do this, you aren’t going to get out of debt.
Plan to Pay Your Bills
Set up a plan to pay off your bills one at a time. There are two strategies for doing this. I would suggest choosing the one you prefer and setting up a payment plan according to it.
One, pay off the bills with the biggest interest rates first. This makes sense, because you eventually want to pay as little as you have to. So pay off the debts that require more interest payments early. Choose your plan according to this criterion.
Two, pay off the bills according to size. Pay off the smallest debts first. This is a form of debt consolidation. Soon, you’ll be seeing fewer bills every month and you will have fewer debtors reporting you as a debtor. You won’t have as many stressful moments in a month where you open another bill. This will help you repair your credit rating a little quicker, too.
Set a Goal
Figure out a time in the future when you will be debt free. This helps you keep your eye on the prize. When you feel the urge to go on a spending spree, remember that you have a goal you are attempting to reach. When you get down in the dumps about your financial situation, you’ll have the comfort of knowing it won’t always be this way.
Set a Realistic Goal
Make this a realistic goal, though. This may require a couple of years of retrenching before you’re out of debt. Don’t set yourself up for disappointment by being too optimistic. Now is the time to be open-eyed about what it’s going to take to end your debt woes.
Build a Bank Account
Once you are out of debt, try to build up your financial reserves. This way, the bank is paying you interest, instead of you paying interest to your creditors.
You learned financial discipline to get out of debt. Don’t forget those lessons as soon as the task is over. Sure, it might be time to loosen up a bit and live a little, but don’t begin the slide back into the ditch.
Practice some of that discipline and build up a cash reserve for emergencies and other onetime “big money” expenditures. This way, when something arises, you don’t have to place yourself in debt. You’ll live a much more carefree life if you are ahead of the game.
Tip: You may also consider taking steps to repair your credit by opening a secured credit card account. Also consider looking into government debt consolidation loans.