Debt has become a way of life: credit cards, auto loans, mortgages … the list goes on. Very few people can live completely debt-free. If you find yourself struggling to pay bills, you might benefit from creating a plan to help reduce your debt.
The following 7 debt reduction strategies are designed to help you reduce your debt quickly and economically.
1. Create a Budget and Stick With It.
Begin by making a list of your monthly expenses (which should include any money you would like to set aside for savings) and your monthly income. Identify expenses that are variable and those that are inflexible. If a comparison of your expenses and income reveals that you have more income than expenses, then you’re in a good position. This means you can make eliminating debt a priority. If you are showing more expenses than income, then you will have to make some adjustments to expenses. You can request a copy of the Personal Budget Planner from State Employees Credit Union for more information on creating a budget.
2. Don’t Borrow Additional Money to Pay off Debts or Bills.
All debt needs to be paid off eventually. If you start borrowing more money, it is only a short term solution. Make a commitment to cutting down unnecessary spending and putting that money toward your existing debt.
3. Cut Expenses.
Get this number by analyzing your budget and determining where reductions can be made (e.g., eating out, buying snacks and lunch at work, going to the movies, etc.). Once you have determined how much you plan to cut, use this “found” money to pay down the balances on your debts.
4. Optimize Your Monthly Payment.
Pay the maximum amount towards your highest interest rate debts, such as credit cards. Pay the minimum amount on all other debts.
5. Ask for Reduced Interest Rates
Some creditors, especially credit card companies, will reduce your interest rates if you just call and ask. If you receive offers for other credits cards with lower interest rates in the mail, use those offers as leverage when you are re-negotiating your rates with your current creditors.
6. Set Goals and Priorities. Determine what’s important. When you prepare to buy something ask yourself if this purchase is in line with the priorities you have set and will it help you reach your goal or delay it.
There is a lot of information available about creating a budget and reducing your debt. This Quicken site – http://www.quicken.com/planning/debt/ – provides a free Debt Reduction Planner that allows you to determine the amounts you should be paying towards each of your debts and calculates the money you will save by paying your debts in the recommended order. Additionally, the program tells you when each of your debts will be paid off.
State Employees Credit Union also offers helpful information. You can find Money Management tips at secunm.org or here on the State ECU blog, and we also offer financial calculators that can help you make a variety of financial decisions. Access the calculators here.