You’ve been lugging around that debt for so long, it’s wearing you out. But don’t despair, there are several ways to reduce or eliminate debt. Consider employing some of the following to get yourself back on track.
- Don’t Add More Debt
A no-brainer, right? But there’s a good chance poor spending habits got you in trouble in the first place. Ironically, it’s also tempting to make a major purchase to cheer yourself up, when adding more debt is the last thing you need to do. Keep it up, and it will be that much harder to reduce your debt. Consider not using your cards at all while you’re trying to dig yourself out.
- Add to Your Payment
Making minimum monthly payments on your credit cards won’t cut it;it will take forever to eat into your debt. And any remaining balance collects those pesky interest charges monthly.
The only time it’s all right to pay the minimum on some of your cards is when you’re making a big payment on one of them as part of a financial strategy.
- Create an Emergency Fund
It may sound illogical to stash cash when you’re using every spare penny to pay down or get rid of debt. However, an emergency fund of between three to eight months can keep you from generating more debt, since many people reach for their credit card when an unexpected expense crops up.
- Focus on One Debt
That’s right: pick a debt and give it all you have. Some people try to make inroads on their debt by adding a few dollars to their minimum payment. That’s fine, but it only reduces their debt slightly each month. You can make more progress by making a large payment on one card each month, while making minimum payments on the others, until the debt is paid off. Then do the same for another card and repeat the process until all your debts have vanished.
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- Request a Lower Interest Rate
It doesn’t hurt to ask your card issuer to drop your rate a bit, especially if you have a good payment history. Higher interest rates make it hard to get out of debt because a chunk of your payment always goes toward the interest charge and not the balance.
You also may want to consider a balance transfer, a process that allows you to shift your balance from one credit card to another with a 0% interest rate for an introductory period of a year or more. Just be sure you’re able to pay off the card during that promotional period and before the rate goes back up.
- Find More Cash to Put Toward Your Debt
You likely wouldn’t be reading this if you weren’t ready to eliminate your debt. So, look for ways to start paying it down. Make a budget, if you haven’t already, so that you can see where your money’s going. If there are areas in which you can cut back, put those savings toward your debt. Perhaps you can generate extra income via a hobby or by selling items from your home.
- Settle with Your Creditors
You may want to purse a financial strategy called debt settlement if your accounts are delinquent or you owe more than you could repay over a few years. The approach usually involves putting cash monthly into a federally backed savings account that you control. Once you have enough money saved, the debt settlement agency will go to your creditors – whom you will have stopped paying — with offers to pay less than what you owe to “settle” your debts. Your credit will take a big hit, but it can be repaired over time.
- Go Through Credit Counseling
These outfits can advise you on your financial situation, help you create a budget, and often offer money management workshops. Avoid organizations that push a debt management plan as your sole option before they’ve delved into your circumstances.
You now have eight ways to reduce or eliminate debt. Size them up against your situation and get to work improving your financial health. Start today!
