Strategies for Decreasing Debt

Decreasing debt helps increase disposable income, and once you've paid down your debt, your credit rating will slowly increase. Several strategies help reduce debt. By employing these techniques in your life, you can eliminate your debt and improve finances.

Cash Only

Many people use credit cards to buy items that they otherwise couldn't afford. And when they can't pay off the charge, charges pile up and debt gets out of control. Reversing debt problems caused by the overuse of credit cards starts with putting plastic away and relying on cash only to make purchases. Because you're not using credit to buy now, you'll have to plan purchases and save money. Not only does this strategy help with reducing debt, but you'll get practice in how to budget and control impulse spending.

Monthly Payments

Using cash to buy items eliminates new charges on your credit cards. To begin decreasing the debt, you have to put more money toward your debt each month. Paying the minimum is convenient and doesn't require a lot of money. However, small payments won't put a dent in your principal, and to get rid of the debt faster you have to double, triple, even quadruple your minimum payments every month until the debt is gone.

Tapping into Your Home's Equity

Some debtors hesitate to use a home equity loan to pay off high-interest debts because defaulting on the second mortgage can result in losing their home to foreclosure. However, if you're confident that you're able to afford a second mortgage, a home equity loan can quickly pay off credit card debt and save you money each month. You have to pay back a home equity loan. But with lower interest rates than credit cards, you'll have lower payments. A fixed term means you'll pay off the home equity debt within a specific time frame.

Debt Consolidation

Some people spend years trying to pay off their debt and never succeed. If you are unable to decrease debt on your own, consider getting help from a debt management company. Search for a company that doesn't charge a fee (non-profit) to help you consolidate and lower your debt. Once accepted into the program (you have to qualify), a trained debt consultant will work with you and your creditors to get you better rates and lower payments on your debt.