How do I Drastically Reduce Debt?

People who have found success in debt reduction have one thing in common, they simply stopped living beyond their means. Drastic reduction of debt requires drastic reduction of excessive spending. Those who are seriously determined to reduce debt find that consistency and simple common sense are the keys to financial freedom. Small daily spending choices as well as major purchases, add up to a cycle of lifestyle debt that can be extremely difficult to break, but by no means is it impossible.

Instructions

Transfer Credit Card Debt

1




Zero percent balance transfer cards are useful if they don't become a habit.

Apply for a credit card that offers a zero percent balance transfer rate. Transferring credit card debts to a zero percent credit card allows for a year (and in some cases for the life of the balance) to pay down the debt with no interest. Balance transfers typically apply a one-time fee based on the amount of debt being transferred. Record initial balances in a spreadsheet or notebook. Realize that transferring debt can become a bad habit. Vow to do it only once in order to get started in eliminating costly credit card interest fees.

2




Freeze credit cards --- literally.

End credit card dependency. Fill a plastic bag with water, place the zero percent credit card (and any other cards carrying residual balances) in the plastic bag. Put the bag in the freezer to literally "freeze" the credit cards without having to close the accounts, which can be damaging to credit scores. According to tips at the Simple Dollar, the psychological empowerment of freezing cards not only feels good, it also eliminates the tendency for impulse purchases because it takes time to "defrost" a credit card in order to use. By the time the ice melts, a consumer can more effectively distinguish between "wants" and needs.

3




If shopping is a lure, stay away from the mall for a while and ask friends for support and encouragement.

Find creative ways to cut spending in order to pay down credit cards. Eating out and going shopping can be expensive. Take lunches to work and cook dinner at home for the first two months of debt reduction. Avoid shopping altogether during those first two months. Reward diligence on the third month with a dinner out or a small treat. It is imperative to have occasional treats in order to avoid discouragement, frustration and failure. At the fourth month, set aside $30 dollars in cash each month for small indulgences and vow not to exceed that limit. Record all credit card payments in the spreadsheet or note book to track declining debt.

4




Simplify life by sticking to a budget. It relieves stress and opens the door to financial freedom.

Pay credit cards down as often as possible while reserving enough cash in checking to pay ongoing monthly expenses such as utilities. Don't become discouraged as the first few months are the most difficult. Budget money at the beginning of each month for expected expenses. Refer to the spreadsheet or notebook to review progress on payments and to get encouragement from visualizing the shrinking debt. According to Dave Ramsey's syndicated radio show on financial freedom, it takes three to four months to get used to living on a strict budget. On the Dave Ramsey website, visitors have free access to encouragement, tips, pointers and budget plans that have proven successful for helping thousands of people out of serious debt.

Refinance the House Mortgage

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Look into refinancing your house.

Meet with a mortgage lender to discuss the possibility of refinancing the house mortgage. Determine how much money can be saved through refinancing and compare it against any closing costs incurred through the process. Proceed if refinancing to a lower interest rate at one point less than the home's current rate is available. Make sure closing costs can be recovered within a year.

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Find out what home sales are in the immediate area.

Tidy the house for the upcoming appraisal that is often the deciding factor in whether or not a home can be refinanced. There's no need to go overboard, but a tidy home puts the odds in favor for a higher appraisal. Contact a sales agent and ask for sales figures on recent home purchases in the immediate area (these are known as comps, which is short for comparisons). Comps indicate what homes are worth for purchasing as well as refinancing. Comps are also available as public information on county government websites, but recent sales figures are more easily accessed through sales agents. Knowing comparable market prices means knowing if the appraisal is fair and accurate.

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Save money by negotiating the terms on refinancing a home.

Request appraisal fees to be waived in the event the home's value does not meet the loan amount needed for refinancing. Lenders can often be persuaded to return the cost of an unsuccessful appraisal, which can be as high as $400 dollars. In the process of paying down debt, losing $400 can be a major setback that seems extremely unfair. Persuasive diplomacy is a powerful tool in discussing terms and refunds with lenders. Research and learn online about bargaining strategies that save money for refinancing a home. The Federal Reserve Recommends fully understanding settlement costs before refinancing or purchasing a home.

Examine Auto Insurance Policies and Transportation Needs

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Raise deductibles on auto insurance policies without reducing coverage.

Discuss options for saving money on insurance for cars. Raising deductibles on vehicle policies can save significant amounts of money without reducing coverage. Consolidating all insurance policies (including homeowner) with one Insurance company also saves money because multiple policies are typically discounted when held with the same insurance company.

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New cars look nice, but they are more expensive to insure than older models.

Sell unnecessary cars that drain the budget, are too expensive or don't not get used enough to warrant ownership. Put an advertisement in the paper, place a for sale sign in the window, or park the car in a local shopping center that allows cars for sale to be parked on the weekends. Realize that newer cars are considerably more expensive to insure than older models. Replacing a new car with a used older model can save a great deal on insurance premiums.

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Save insurance money with significant safe-driver discounts.

Make sure safe driver discounts and good student discounts are in place for applicable auto insurance policies. Have insurance agents exhaust all options for saving money on premiums. Have young drivers complete school driving courses that result in discounts for auto policies. Eliminate the third car from a family of three with a teen driver in order to drop insurance rates drastically. In the eyes of the insurance company, two cars shared between three people (including a teen driver) means the teen driver is only a part-time driver of one of the two cars. This circumstance reduces premiums significantly.