No one wants to be in debt, yet it seems to be a common component of living in the modern world. Whether you owe so much that you feel overwhelmed, or owe a manageable amount that you’d like to bring down to zero, focusing on ways to reduce your debt can help you get your financial life on track. It’s important to remember that no debt reduction techniques will result in overnight success. Reducing the amount you owe as much as possible involves a good deal of planning and commitment to the plan you’ve created.
Evaluate Your Debt
Before you can focus on reducing your debt, it helps to understand what you owe, to whom you owe it and what the interest rate and other terms of the debt are. Take a look at your credit report to see what accounts you have open and what accounts you owe money on. It is also important to review your bills and statements. Make a list of all the loans and other debts, then add up the total amount of what you owe and the total amount of your monthly combined payments.
Make A Plan (And A Budget)
One method for debt reduction is to create a budget or plan that hones in on paying off your debts. Now that you know what you owe and how much you need to pay each month, you can create a budget around this. Making a budget involves examining your income and expenses and comparing them to each other. Depending on your circumstances, if you want to eliminate your debt you might have to find ways to reduce your spending by cutting back on non-essentials or find ways to increase your income if your current expenses are limited to only the things you need.
Look Around For A Better Deal
In some instances, a better deal is out there, one that will help you pay less on your debts over time, helping you pay them off more quickly. For example, if you have credit card debt with a high interest rate, you can try calling the card company and ask them to reduce the rate. The company might say no, but it also might agree to cut your rate, if it would increase the likelihood that you would pay off the debt. If you have a mortgage, it might be worth your while to explore refinancing options to get a lower interest rate. Keep in mind, though, that in some cases the cost of refinancing is higher than the amount you’d save on your mortgage.
Pick the Debts to Pay off First
Usually, it’s a good idea to focus on paying off the more expensive debts first. Put any extra money you have each month towards the credit card debt with the highest interest rate so that you pay less over time. Once that debt is paid off, use the money that you were putting towards it to pay extra on the card or loan with the next highest debt, and so on.
Figuring out the best way to reduce your debt can be difficult, and everyone’s situation is slightly different. That’s where personalized credit counseling can be helpful, as it looks at your specific situation and makes recommendations based on what would best help you. For example, you might benefit from a debt management plan, which involves negotiating with your creditors and making one payment a month. Or, it could be that a focused budget is all you need to reduce your debt. For more information on counseling and debt management, contact us today.
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Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY