How to Reduce or Eliminate Debt

Debt sometimes feels like a merry-go-round, where you move circles without going anywhere. If you charge as much or more than you pay on your debts each month, those debts can ruin your financial future. Resolve to start getting rid of those debts. Change the habits that got you intro trouble and learn how to pay your debts off faster. Then you can watch your debts shrink every month and eventually eliminate them completely.

Instructions

1

Start by eliminating nonessential expenses. If you consider cable TV, cell phones, meals out and new clothing essential, you need to reconsider. Ric Edelman, author of "The Truth About Money," says that very few expenses are essential. You can eliminate your gym membership, entertainment and processed foods, he says. You can decide for yourself how far to go, but at least consider eliminating some of these regular expenses. For more ideas on living frugally, try some of the many tips in Amy Dacyczyn's book, "The Complete Tightwad Gazette."

2

Make a list of what your owe, including the names of the creditors, interest rates and amounts. Resolve to pay off the highest interest rate loan first and pay the minimum on all the others, as Kiplinger suggests.

3

Try to transfer your highest interest rate loan to get a lower rate. Usually, the highest rate is on a credit card. Kiplinger suggests obtaining a lower-rate card and transferring your balance. If the low rate is temporary, make certain you can pay the card in full before it runs out. You can also transfer balances to a lower-rate card you already have or call and ask your banks for lower rates on your present cards.

4




Stop borrowing immediately.

Stop borrowing immediately. Jane Bryant Quinn, the author of "Making the Most of Your Money Now," says this step forms the basis for getting out of debt. Otherwise, if you pay off bills and borrow at the same time, you are going in circles. If your basic expenses still exceed your income after making cutbacks, consider major changes. Downsize your home, as Edelman suggests, or get rid of a car.

5

Take money from savings to pay off your debts. Jane Bryant Quinn recommends that you leave your retirement accounts intact. Use this money for a one-time reduction of debt. Don't keep paying high interest on debt and collecting pennies on your savings.

6

Put your extra money on the highest interest rate bill every month, paying only the minimum on the others, as Quinn suggests. Do this with each highest rate bill in turn. If you stay on a cash basis and live frugally, you will reduce your debts every month. In time, your new habits will help you pay off your debt completely. Then you will be ready to invest for a brighter future.