Ways To Reduce Debt
If you want to reduce debt, you have to start somewhere and you might be surprised how just taking these small steps can go a long way in helping you to do just that.
First and foremost, stop all unnecessary spending. If you don't want to cut up your credit cards, freeze them. Literally freeze them. Put each credit card in a baggie with some water and put them in the freezer. This may seem silly but if you think about it, in order to use the card, you will need to thaw it out and this will stop any spur of the moment spending.
Figure out just how much debt you have. You can't reduce debt until you know how much debt you have. Gather together all of your bills. If you missed any payments, make sure to bring those current first. Once they're all current, organize the credit cards in order of the highest interest rate balances first. Pay only the minimum on all but the highest rate card and apply as much money as you can to the highest rate card every month until it is paid in full. Once this card is paid in full, attack the next highest rate card and so on until all of your balances are paid in full.
Once a year, you are entitled to a copy of your three credit reports for free. Make sure that there are no surprises in your credit picture. You can get your free report from www.annualcreditreport.com.
Putting yourself on a budget is the best way to reduce debt. A lot of people have had great success using Dave Ramsey's envelope system. It's a simple system. Here's how it works:
**Budget each paycheck. Budget is a dirty word to most people, but you must budget down to the last dime if you're going to successfully implement the envelope system.
**Divide and conquer. Of course, there will be budget items that you cannot include in your envelope system, like bills paid by check or automatic withdraw. However, you can create categories like food, gas, clothing and entertainment.
**Fill 'er Up. After you've categorized your cash expenses, fill each envelope with the money allotted for it in your budget. For example, if you allow $100 for clothing, put $100 in cash in your clothing envelope for the month.
**When it's gone, it's gone. Once you've spent all the money in a given envelope, you're done spending for that category. If you go on a shopping spree and spend the $100 in your clothing envelope, you can't spend any more on clothes until you budget for that category again. That means no visits to the ATM to withdraw more money!
**Don't be tempted. While debit cards can't get you directly into debt, if used carelessly, they can cause you to over-spend. There's something psychological about spending cash that hurts more than swiping a piece of plastic. If spending cash whenever possible can become a habit, you'll be less likely to over-spend or buy on impulse.
**Give it time. It will take a few months to perfect your envelope system. Don't give up after a month or two if it's not clicking. You'll get the hang of it and see how beneficial the envelope system is as you dump debt, build wealth, and achieve financial peace! See ... it's simple! You can reduce debt!
Check into refinancing your home to include all of your debt while interest rates are low. You will probably need at least 10% equity in your home along with a credit score over 740 to get the best rates. Try negotiating with your current lender first.
If your credit card debt is overwhelming, talk to each credit card company directly to see if you can lower your rates or your monthly payments. It's not always easy to negotiate a better deal, you may need to speak to several supervisors. Don't fall victim to one of those debt resolution companies. They usually charge large fees and take the payment process out of your hands and that may cause you to have late or missed payments, damaging your credit.
If you need help, credit card companies are required to put a toll-free number for a nonprofit credit counseling service on every bill thanks to The Credit Card Accountability, Responsibility and Disclosure Act that took effect in February of 2010. Just keep in mind that the credit card companies fund these nonprofits so they may not always act in your best interest and just like with debt resolution companies, they don't always get the bills paid on time. If you are looking for help in negotiating your balances to reduce debt, these agencies are much better than those credit repair agencies you see on TV.
Once you get out of debt, don't go back to the same habits that got you into your credit mess. Now is the time to start saving.
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