Debt-ridden consumers looking for a fast way out have spurred the growth of an entire industry that centers around debt management and settlement. Unfortunately, there is no quick fix. There are, however, steps you can take to reel in your spending and accelerate the rate at which you pay down your debt.
Assess Your Situation
View the big picture by listing all your debts in four columns on a piece of paper or in a spreadsheet. Enter the name of each company in the first column, the amount you owe in column two, your interest rate in column three and your payment amount in column four. Differentiate between OK debt and bad debt. Motley Fool defines OK debt as that which has a lower interest rate or is used for a purchase that appreciates. Examples of OK debt include your mortgage, student loans and car loans. Although the latter does not appreciate, the benefits of an education and of owning a car outweigh the risks of the debt. Everything else is bad debt.
Lower Your Interest Rates
Contact each of your credit issuers to request reductions in your interest rates. Motley Fool advises consumers to tell them you'd like to remain their customer because you feel a sense of loyalty toward them, but that you've received offers for lower rates elsewhere. If the agent you speak with declines your request, ask to speak to his supervisor. Continue in this manner until you're successful or have reached the highest level possible. If current interest rates for mortgage and car loans are two points or more lower than you're paying, consider refinancing. Even if you don't make any other changes, reducing your interest rates will help you pay down your debt faster because more of your payments will go toward the principal balances.
Trim Expenses
Make a list of all your fixed expenses: cell phone, cable or satellite TV, Internet access, utilities and other monthly payments unrelated to debt. Call each carrier to inquire about ways to lower your payments. It may help to compare competitors' rates and special discount offers and use the information as leverage to negotiate better rates with your current providers. If they can't reduce your bills, consider switching to their competitors.
Cut Waste
Over the next month, track every cent of your discretionary spending. Go over your list each week to examine to identify obviously waste so that you can curtail that right away. By the end of the month, you'll have enough information to enable you to categorize your spending. The categories might include food---further broken down by groceries and dining out---entertainment, clothing, gas and grooming products and services. Decide what you can live without and compute how much your cutbacks will save each month.
Pay Down the Debt
Now that you've reduced your bills and your spending, it's time to put the savings to work paying down your debt. First, transfer balances from the highest rate credit cards to the lowest ones. Make a new list of your remaining bad-credit creditors and your balances due, interest rates and minimum payments. Also, tally the amount you've saved by reducing your fixed expenses and curbing your spending. Earmark this total for debt repayment. Motley Fool recommends paying off the accounts with the highest interest rates first. Use the savings to make larger monthly payments on these higher-interest accounts while you continue to make minimum payments on the low-interest ones. As you repay each higher-interest account, add the amount you were paying each month to payments for the account with the next highest balance. This repayment method causes a snowball effect that reduces your total debt faster and faster as each high-interest account is repaid, even though the amount you're paying out each month stays the same.
0 comments:
Post a Comment