Everywhere you turn these days, financial advisers are telling you how to save money and how to deal with your debt. If you listen to the wrong source, you could find yourself worse off than you were. Some debt options might not be the best route to take to get out of debt. Always trust your gut and, if it sounds too good to be true, it probably is. Consider a few options to help solve your debt problem.
Negotiate Your Rates
One of the first steps to reduce your debts is to list them. While this is intimidating at first, it helps you to see the overall picture. List each debt along with the monthly payment and interest rate. Next, call each lender and ask for an interest rate reduction. Even just a small reduction in rate will save money over the life of the loan. This method works best with credit card companies. If you receive a rate reduction from one, tell the next company that you want that rate matched. If you are not successful the first time around, call a week or so later and ask a different customer service representative to reduce your rate.
Balance Transfers
When you are on the phone with each credit card company, ask if they have any balance transfer programs available for your cards. If you can transfer the balance from one card to another and receive a lower or zero percent interest rate--even for a limited time--it will help to reduce the amount of interest you will pay over the life of the loan. But do not forget that you will incur a fee for the transfer, usually 3 percent of the total amount transferred.
Consolidation Loans
If you have a home mortgage, you can consolidate your debt by refinancing your first mortgage or by taking out a home equity line of credit to pay off your debt. Although this may lower your monthly payment, it will extend the life of your loans. You will pay for the same debt over a much longer period, and therefore will pay more interest. Yet if you use this method and continue to make serious reductions to the loan principal, you will be better off in the long run.
Examine and Trim Your Budget
Take the list of debts that you had when you negotiated your rates, and add all of your monthly bills to it. Then include line items for each category of money you spend. Look at your bank statement for three months, and create a budget based upon your actual expenditures. After you see where all of your money goes, see if there is anywhere where you can trim your budget. Are you spending too much money eating out? Could you trim your clothes budget? What about your subscription services, such as cable TV or the Internet? Could you switch to another service to save money? Could you trim services to reduce your monthly payment?
Earn Extra Income
Once you have trimmed your budget and have deleted excess spending, find ways to earn extra income to pay your debt down faster. Can you volunteer for overtime at work? Can you get a second job? What about babysitting or mowing neighbors' lawns? Can you freelance online in your career field?
The Snowball Method
Look back at your list of debts. List them in order from smallest to largest in terms of each monthly payment. Take all of the extra income you "found" in your budget and are earning on the side to pay it down. Once that debt is paid in full, take all the money you were paying to that debt, and add it to the monthly payment of your next highest debt. Keep paying on the next debt until it is paid in full. Keep "snowballing" your payments until you pay off all your debts in full. This is a great way to help keep you disciplined to pay down your debt as quickly as possible.
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