Even if you're able to make your minimum payments each month, excessive debt can stop you from getting a mortgage or auto loan, because lenders prefer applicants with a low debt-to-income ratio (percentage of your income that goes to debt payments). But take heart -- even if you're drowning in debt, you can still improve your finances. Learn to tame your debt and get rid of your credit card balances. This will improve your personal finances and increase your credit rating.
Eliminate High Interest Rates
Little maneuvers here and there can help speed the debt payment process and get you on the path to debt-free living. For example, the amount you pay in interest charges each month impacts how fast you're able to pay down your principal balance. Check the rate on all of your credit cards, and then call your creditors to negotiate a lower rate.
Minimum Payments
The majority of credit card companies don't require full repayment of your balance each month. They allow you to carry balances from month to month and only request a small minimum payment. Minimums are advantageous when you don't have a lot of extra cash to put towards your debt. But if you have the extra income, ignore the minimum and drop lump sums on your debt each month, to tackle the balance and pay off the cards. Spend $200 a month on your credit card, and you'll pay off a $1,000 balance in about five months.
Beware of Credit Cards
Credit cards are not "free money" or "magic cards." Yes, they allow you to get whatever you want now. But the inability to control your spending or deny yourself can result in huge debts and financial ruin. Dealing with your debt involves more than negotiating a lower interest rate and making higher payments -- you've got to stop adding new debt. This is the only way to reduce your principal. Take credit cards out of your wallet and learn to survive on a cash budget.
Debt Consolidation
Eliminating debt is a huge undertaking, and depending on how much you owe, you may need professional help to dig you out of the hole. Debt counselors offer consolidation services -- they merge all your debt and manage debt payments on your behalf. Debt counselors also work with creditors to get you better terms and rates.
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