What Might Be Done to Reduce Debt?

Several effective methods are useful for reducing your debt. Consumer debt can include credit card balances, student loans, auto loans and other types of installment loans. If you're not careful, you could acquire excessive debt and have difficulty making your payments. Learn ways to pay off or pay down your debt, an ultimately improve your personal credit rating.

Cash Policy

Develop a debt elimination plan that involves paying cash for items and reserving credit cards for emergencies. Credit helps when you're short on cash, or need funds until your next payday. However, relying on credit to buy things you don't need or living off credit can quickly increase your debt balances. Decide at the beginning of each month what you plan to spend on recurring expenses and extras such as dining out and entertainment. Stay within a modest budget, and stop spending once you've met your established budget.

Monthly Payment

The way you pay creditors affects the rate at which you pay down your outstanding balances. For starters, get out of the habit of only giving creditors the minimum payment each month. If you make a $100 purchase on a credit card, aim to pay off the new charge completely or at least half the new charge to start reducing the debt. This method is doable when you limit charges to what you can afford to pay off within a month. Also, making bi-weekly payments (every two weeks) helps bring down debt faster because this method reduces the amount of interest you pay on credit and loan accounts.

Lower Interest Rate

Paying less interest each month can reduce debt faster because the bulk of payments apply to the principal. Methods to reduce your interest rate on existing debt include speaking with your creditors and simply requesting a cheaper rate. You can also explore other credit card offers, and then submit an application to see if you qualify for a low-rate balance transfer.

Modify Life

Lifestyle modifications can also help reduce debt. The less money you spend on monthly expenses, the more cash you have to put toward debt elimination. Huge balances may call for a complete modification that can entail moving into a cheaper apartment, financing a less expensive car or eliminating monthly services that take a chunk of your income. Consider getting a roommate to cut your monthly expenses in half, and use this cash to make higher debt payments. Postponing vacations and other expensive purchases also puts you on the path toward reducing or paying off your debt.