Personal debt is very high in the United States, and many people are struggling to gain control of their finances. Experts like Dave Ramsey and Suze Orman are making a name for themselves by teaching people common sense strategies to reduce debt. Although it may seem impossible at times, there are things anyone can do to reduce personal debt.
Reduce Monthly Living Expenses
Reducing monthly living expenses will free up money to use to pay off personal debt. It will also allow for money to be put into savings once personal debt is paid off. Ways to cut expenses can include reducing or eliminating cable or Internet service. It may also mean doing more to conserve electricity; eliminating paper or magazine subscriptions; and eating at home instead of at restaurants. In cases of large debt, it could also mean moving to a smaller and less expensive house or apartment.
Reduce Vehicle Costs
If your family owns and drives multiple cars, consider reducing the number of cars by one. Cars are a huge expense, including payments, gas, oil changes, insurance and repairs. Cars are also a source of many unexpected expenses. If the extra car can be sold, that money can be put towards paying off debt. Although reducing the number of cars may significantly impact daily life, it is likely a change worth making. You may have to consider car pooling or alternatives modes of transportation.
Increase Income
Getting a second job, and then applying all the money earned to paying off debt has the potential to make a big impact in a short time. If you already have a full-time job, you will need to find a job either in the evening or early morning. Look into getting a motor paper route. Most morning papers have to be delivered very early, so this could easily be done prior to going to a first-shift job.
Pay Off Smaller Debts
There are multiple strategies to actually paying off debt. One strategy is to start with the smallest bills--those that you can pay off quickly. This will reduce your number of monthly payments, and then you can take the money you were using to pay off the smaller debt, and add it the payment on a larger debt. For example, if you owe $2,000 on one credit card and $200 on a second credit, pay off the $200 bill first, and then apply more money to pay off the $2,000 bill.
Eliminate High Interest Debt
A second strategy to paying off debt is to focus on paying off the debt with the largest interest rate first. Interest rates cause debt to grow larger every month. Focusing on the bills charging the highest interest rates will allow you to decrease the amount of debt you gain every month.
Consolidate Bills
When your debt is so spread out that you can't even make the minimum payments on each bill, you may want to consider a debt consolidation loan. Although this won't actually decrease any debt, it will allow you to send only one payment each month. Although consolidation loans will also involve paying interest, it will likely be a lower overall rate than you were paying on numerous individual debts.
Sell Personal Items
Look around your home for things you can sell to make extra money. Use that money towards paying off debt. Items to sell may include books, movies, music, furniture, jewelry, or housewares. You don't need to have antiques or valuables to consider selling things. Try to sell items through outlets like Craigslist first because it is free. Look into local consignment or resale shops, and list smaller or easier to ship items on eBay. If you have a lot of things you can get rid of then have a garage sale.
Quit Smoking and Drinking
Columnist, MP Dunleavey, recommends quitting vices when trying to reduce debt. Smoking and drinking cost a lot of money, and that is money that could be going towards paying off your debt. Quit smoking or drinking, but each day take the money you would have spent on cigarettes or alcohol, and put it in a jar at home. At the end of each month, count up how much money you saved, and then use it to pay towards your debt.
Stop Using Credit
The Motley Fool and Dave Ramsey strongly recommend people in debt stop using credit. Credit will only increase the amount of debt, and it creates a habit that is hard to break. Only buy items you can pay cash for. Although that may be very hard to do, especially if you are already in debt, it ensures you will not add to your debt.
Create an Emergency Fund
Dave Ramsey, personal finance professional, recommends people create an emergency fund with $1,000 in it. This will aid in reducing debt because it will allow you to handle emergency situations without relying on credit cards. Without an emergency fund, a routine problem such as an unreliable car can knock you off your debt reduction plan.
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