5 Simple Steps for Reducing or Eliminating Your Debt
If you feel overwhelmed by debt, know that there are steps you can take to reduce and eventually eliminate it. In most cases, debt reduction is simply a matter of proper planning and dedication. By following these 5 easy steps, you will be able to reduce your debt and get back on the road to financial stability.
1. Calculate your total debt. Gather all your financial documents and calculate your total debt. Include your credit card bills, payday loans, auto loans, and any other high interest rate debt that you have accumulated. Do not add your mortgage or student loans at this time, since these debts are long-term debts that usually carry a low APR. Be sure to include any additional fees that you are paying, such as credit card annual fees.
2. Calculate your monthly earnings. Figure out your total monthly income after taxes. Subtract necessary expenses such as your mortgage or rent, child support payment, insurance, utilities, gas, and groceries. Once all your expenses are accounted for, you will know how much money is left over to pay off your debt. If this amount is too small to make a difference in your debt balance, think about ways to reduce your expenses. Perhaps you can carpool to work to save money on gas and car repairs. Alternately, you might consider renting out a room in your house to help pay the mortgage. You may also consider doing part-time work to increase your base earnings.
3. Create a debt reduction chart. With your financial information in hand, subtract all your expenses from your earnings. Also, subtract a small amount of money that you will use for personal purchases throughout each month or payment cycle. The amount left over is the money you can use to pay off your debt. Now, create a chart that lists your entire debt amount. Divide your total debt amount by the money you have left over. This will provide you with the number of months, or payment cycles, that it will take until your debt is paid off. Fill in the chart with your decreasing debt amounts per each sequential debt payment. Again, if you don’t like the rate at which you will be paying off your debt, consider other cost-cutting or money-making alternatives.
4. Stay on track and on budget. Once you start your debt repayment plan, you may be tempted to put additional charges on your credit cards or to take out a new loan. Use only the money you had initially set aside for personal use in order to make purchases. Mark off every debt repayment you make on the chart you created in Step 3.
5. Negotiate for lower interest rates. Call up your lenders and credit card issuers and negotiate for a lower APR. If that tactic does not work, consider transferring your debt balances to lenders and issuers that have lower interest rates. This will help you avoid using your debt repayment money just to pay high interest fees.
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