Debt Reduction Strategy

Debt is a wide-scale issue that requires immediate attention. The ability to reduce debt and stop being a slave to your credit cards is a life-changing decision. With the correct budget, priority payment schedule and knowledge you can accomplish financial freedom in far less time than you could ever imagine.

Create a Budget

Writing a budget is the key to creating a debt reduction strategy. If you don't know exactly how much money you spend each month it's virtually impossible to get a firm handle on your money. A budget is created when you list all of your monthly expenses and cross-reference them with your monthly income. You must itemize every single expense from food, car, credit cards entertainment, etc.
A great way to facilitate this is to open an Excel page on your computer. Pick a column and start filling in the names of your expenses; go down the page by placing one item in each box. Be specific with this data, so that when you reference it over time, you will understand what each expense really is. Instead of saying credit card, actually write the name of which credit card it is.
The creation and maintenance of your budget will take some time and it does involve discipline to continue to monitor it and document it on a routine basis. This needs to become a habit every month. Doing this one or two times will not accomplish any long-term solutions.
Finance specialist Dave Ramsey says, "When you see that a budget is just spending your money with intention, you'll actually experience more freedom than before. Many people say they found even more money when they created a realistic budget and stuck with it."

Prioritize Payments

This is the act of placing each credit card or loan on its own separate list. This can simply be on a second tab in Excel. You can title the page, "Priority" or "Debt Snowball" like Dave Ramsey suggests. One this page, write the total amount owed for each credit card and loan payment. This includes homes and cars. This is anything with a loan balance that does not say zero.
Prioritize these in order from lowest balance to highest balance. This is the order in which you will focus your payoff strategy. Too many people try paying either just the minimum payments or maybe an extra $25-$100 on a range of credit cards. This is not the best concept for paying anything off. The idea behind the priority schedule is to pay the minimum required payments on every item and only pay your "extra" money to the item at the top of the list. This ensures that the top item, your lowest outstanding balance, will be paid off in a timely manner. This builds momentum and gives you a feeling of success.
When your top item is paid off, move to the second item on the list. Add the entire amount you were paying for the first item plus the "extra" amount you were paying. This will allow a faster payoff time period of item 2. When this item has a zero balance, apply all the previous monies used for items 1 and 2 to item 3. Keep this pattern up until all debts are paid. You will notice the payoff period increases dramatically with each item you payoff, and your once-perceived dream of being debt free will become reality far sooner than imagined.

Knowledge

With so much misinformation, it's easy to understand the growing number of people in debt. Credit cards are easy to obtain, as is debt consolidation and bankruptcy. Be cognizant of what is a wise decision or purchase and what is not. Being debt-free it true freedom, while being in debt is like being a slave. Debt controls people. It alters thinking, the ability to change careers, the desire to pursue a dream, everything. Debt is a control mechanism used by banks and credit card companies to continue the flow of money. Knowledge will set you free. It will allow you to not buy something unless you have cash. It will empower you to make the correct decision more often.
Try some of these books to gain wisdom about debt reduction and financial freedom:
"Total Money Makeover" by Dave Ramsey
"The Millionaire Next Door" by Thomas J. Stanley
"The Richest Man in Babylon" by George S. Clason