There is nothing worse than the feeling of being buried under a mountain of debt. Sometimes we come by this debt because of bad spending habits and other times we have it due to circumstances beyond our control. Whatever the reason, the main issue is how to get rid of it. Carrying debt becomes a big problem if you are paying so much to the debt that you are not saving at all for the future, according to MSN Money. Once you learn some strategies, you will be able to cut your debt.
Gauge Your Debt
Gauge whether you are carrying too much debt. According to MSN Money, as of 2010, the average household is carrying $8,000 in credit card debt, and some people routinely carry $15,000 to $20,000. Use a debt calculator to figure out how long it will take you to pay down your debt using the minimum payment and varying higher payments. Bankrate.com provides a debt calculator that is a real eye-opener.
Taking the $8,000 balance as an example, if your interest rate is 18 percent, compounded at 2.5 percent, and you make the minimum payment each month of $200, it will take you 360 months to get rid of your debt, assuming you stop using the card. The interest you will have paid during that time will be $11,615.32. However, if you doubled what you pay each month to $400, you would pay off your debt in 24 months, which would cost you $1,582.61 in interest. This is quite a difference, and it is all due to compounding. The longer you carry a debt, the longer that interest compounds upon itself. It's like quicksand, according to MSN Money.
Ways to Cut Your Debt
In order to cut your debt, you must change your lifestyle. There are seven effective ways to do this, according to MSN Money. Reducing your housing cost by moving or getting a roommate is one way. You can get rid of a car and look to other ways to commute, including ride shares. Take on a part-time job. By putting all you earn toward the debt, you won't have to keep the extra job forever, only until the debt is paid. Cut down on nonessentials, such as cigarettes and buying expensive coffee every morning. Live more moderately by downsizing your lifestyle, including cutting back or eliminating vacations. You may need to take your child out of private school and consider public school or home schooling. Tap any assets you may have. If you have stock you can sell, even at a loss, for example, that you can use to pay off your debt, do it. Avoid tapping into your 401(k), though, because you will need that money for retirement.
If Nothing Works
Financial adviser Sharon Rich, in the MSN Money article, suggests you have a 5-year cutoff plan. If you cannot pay the debt in 5 years, consider other options, such as debt negotiation or bankruptcy. Little spending cuts will not be enough to rid yourself of debt that will take longer than 5 years to pay off.
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