How to Decrease Personal Debt

Decreasing personal debt can benefit your finances in several ways. It allows you to keep more of your money for financial emergencies, retirement savings and discretionary spending. Reducing debt can also improve your credit score, allowing you to pay lower interest rates for major purchases such as cars and homes. Simple strategies can help you reduce or even eliminate your personal debt.

Instructions

1

Establish a budget for paying off your debt, based on how much of your earnings you have left after meeting your monthly expenses. A budget can help you determine how much you have available to apply toward your debt.

2

Review your unsecured debt bills, such as credit card and store charge card bills, and determine which unsecured debt carries the highest interest rate. Focus on paying down this debt first, then move on to the unsecured debt with the next highest interest rate, and so on. This is a strategy advocated by John Ventura in "Managing Debt for Dummies."

3

Contact your creditors to negotiate more favorable interest rates. Creditors may be willing to provide a temporary or permanent interest reduction to keep your business and reduce your motivation to transfer your balances. Negotiation with creditors may be particularly effective if your current debt level poses the risk of missed payments. Improving your ability to keep your accounts current allows creditors to avoid the expenses associated with collections activity.

4

Reduce entertainment expenses to free up money to apply toward your debt. Opting for a weekend road trip instead of an extended vacation, attending a free community concert instead of spending the day shopping and skipping a trip to the movie theater in favor of a movie night at home can all help you save money on entertainment.

5

Use cash instead of credit cards or debit cards for grocery shopping trips. Paying in cash gives you a concrete sense of how much you are spending, and helps reduce the temptation to indulge in grocery items you don't need.

6

Sign up with a credit counseling service, particularly if you are behind on your debt payments. A credit counseling service can work with your creditors to reduce your interest rates and eliminate late and over-limit fees. Typically, you will make a single monthly payment that the credit counseling service distributes among your creditors to pay down your unsecured debt; however, credit counselors typically cannot help with secured debts, such as car and mortgage loans.