Are you deep in debt and are looking for debt reduction solutions? If so, you have come to the right place because you’ll get workable tips to reduce and eliminate your debts. Some tactics may work for your situation but some others may not. But you can always start with the option that can help you to control debt and then add one solution or more once the credit is under your control.
Control Your Level of Debts
1. Stop adding more debts. If credit card debt is the main problem then cut up your credit cards. For emergency needs, keep a card with low credit limit and commit to pay the full balance every month. Always remember not to buy something if you don’t have cash in hand.
2. Evaluate your debt level. Determine exactly how much you owe to your creditors by checking all the billing statements sent to you and then creating a spreadsheet that lists balances, interest charges and minimum monthly payments. This is necessary for creating a realistic budget.
3. Make a budget. Creating a personal budget and sticking to it is a great way to help build good spending habits. The budgeting process starts with a list of all your bills like mortgage, utilities, groceries and other monthly expenses. By subtracting these expenses from after tax income you will be able to calculate how much you have left to pay off your debt. If what left over is too small for increasing your monthly debt payments consider reducing unnecessary spending.
Accumulate Money for Debt Reduction
4. Save money. Making a few sacrifices to save some money is another way to accumulate the money you need for debt reduction. By evaluating your monthly expenses you can reduce unnecessary spending and use the cash to build an emergency fund for the rainy day. If you always pay your bills on time you can also avoid paying unnecessary fees such as late payment fees as an addition to interest charges.
5. Find sources of low-cost funds. If you have any sources of funds or investments with lower returns than your debts then you can cash in to pay off your debt. You can cash in your savings, borrow against your life insurance policy’s cash value or even get a loan from your 401(k). With a written agreement related to repayment schedule and interest rates, consider borrowing from friends and family. Also, try to transfer your credit card balances to a credit card with a lower rate. However, make sure the rate will not be higher than your current rate when the introductory period ends.
6. Get an equity loan. If you own a home or a car with an equity value you may get a loan from the equity to consolidate your debts. A home equity loan can save you significant interest charges as the rate is low and tax-deductible. But if you continue charging your credit cards, you could have the equity loan to repay on top of credit card debt. What’s more, your house is at risk if you fail to repay the loan.
7. Find extra money. If you have a job, increase your current income by looking for assignments that offer over time pay or tasks that will result in a bonus or a higher commission. Getting a part-time or second job as well as starting a side, online business can also help create extra income. Selling your home and selling other assets are also other good sources of money for debt relief.
Debt Reduction Solutions You Can Use
8. Pay more than the minimum. Once you understand your ability to make monthly payments to your creditors you can then set up a debt reduction plan. Look at all of your debts. If they are mostly credit cards, pay as much as you can starting with the highest rate credit card and pay the minimum amounts on your other credit cards. Once you pay off the card, move on to the next card with the highest rate using the same payment method.
9. Talk to your creditors. Now that you know your financial situation you have a good idea of what you can offer to your creditors. Reduce your debt even further by renegotiating terms with your lenders and submitting a proposal that will allow you to pay them in an orderly way. If you don’t have the money let your creditors know that your only way out is filing bankruptcy and they will be more than willing to accept your offer.
10. Change your lifestyle. This may be one of the most difficult debt reduction solutions as you are used to live with your current money attitude for years. If you are persistent enough, however, the effect will be long-term because it will prevent you from falling into uncontrollable debt again. Choose a frugal lifestyle by developing good spending habits and you’ll get out of debt and stay out of debt for the rest of your life.
11. Hire debt reduction help. If you are over your head a consumer credit counseling service can help you to manage your debts through their debt reduction program. Keep in mind that you also incur a monthly fee as an addition to monthly payments to creditors and that the program will show up on your credit record. Alternatively, consider working with a debt settlement service if you don’t see any progress on a debt management plan, or don’t qualify for bankruptcy.
12. File bankruptcy. If all the above options are not possible then filing bankruptcy is unavoidable. The most commonly filed personal bankruptcies are Chapter 7 and Chapter 13. Keep in mind that they will show up on your credit report for the next 7 to 10 years. If you want to avoid unnecessary troubles during the bankruptcy process, before you choose this debt relief option remember to consult a bankruptcy lawyer.
Use a Debt Reduction Calculator for Making a Repayment Plan
All you need to do is enter your debt balance, annual interest rate and current monthly payment. You can play around the “I want to know” form to learn about all your options.
Overall, the only way to get rid of a debt is to pay for it. Just follow some of the above 12 debt reduction strategies that suit your financial situation. With a good repayment plan you are sure to be free of debt in no time and preventing it from ever happening.