8 debt-reduction tips

[Mar 6, 2012.]

 

Setting aside money to pay down your debt typically requires one of two strategies: bringing in more income or reducing your spending. Ideally, you'll do both. No one says debt reduction is easy, but if you make a true commitment, you can eliminate your debt and move on to a more prosperous future.

Here are eight debt reduction tips to get you started:

1. List your debts. The hardest step is sometimes the first one: Make an honest effort to put on paper (or on your computer) a complete list of all your obligations. Be sure to add the minimum payment due, the interest rate and your credit limit to this list.


2. Choose a debt to eliminate. While you need to know the overall problem, you should generally attack the debt with the highest interest rate first. Focus on that bill and just pay the minimum on all others until that balance is gone.


3. Pay your bills on time. Avoid late payment fees and a higher interest rate by making all your payments on time. Sign up for email alerts to make sure you pay before the due date.


4. Use a debt calculator. A debt calculator can show you how fast you can pay a balance in full with different repayment scenarios. This will help you make a plan and show you what a big difference it can make to pay more than the minimum payment.


5. Stop using credit. A great budget tip is to use cash only. Studies show you are likely to spend less whenever you use cash.


6. Set up an automatic transfer. While debt reduction should be your priority, you'll also need to establish an emergency savings fund so you don't need to rely on credit when an unexpected bill arrives. Have $50 or $100 transferred from every paycheck into a savings account to start building your own safety net.


7. Bring in extra cash. If you can find a second job or work overtime or even sell some belongings, this can help your savings fund grow and allow you to pay off debt faster.


8. Make extra payments. Any time you have even a little extra money on hand, go ahead and make an extra payment on the debt you are tackling. Two or more payments every month will eliminate the debt faster.

In addition to following these steps, it's a good idea to plan to revisit your spending and saving plan every few months to track your progress. Sometimes just reviewing your budget can give you the push to re-dedicate yourself to your financial plan.

 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.