It's easy to feel overwhelmed when you're paying down your debt, but when you have encouragement and a solid plan of action you'll feel more motivated to stay on track. You can get your debt paid off more quickly by utilizing eight effective debt reduction tips.
Budget
Before you start paying down your debt, you need to figure out how much you have to contribute to it. Think of your budget as a road map to your financial freedom -- what route do you need to take to get yourself out of the red? To create a budget, compare your recurring monthly costs and out-of-pocket expenses with your income. In areas where you are overspending, think of ways to cut back so you may pay more toward your debt.
Make It Fun
In many ways, budgeting is like dieting -- it's a diet for your wallet. In both instances, many people quit because they feel too restricted. One way to keep yourself from feeling overburdened by your budget is to swap out the things you love with less expensive versions. For example, if you love books, consider using the library for most of your reading materials rather than heading to the bookstore. If you love getting together with friends, why not rotate dinner parties at home instead of going out?
Negotiate Interest Rates
The higher your interest rate, the more you're paying on your debt, and the longer it will take to pay that debt off. Lowering your interest rate may be as easy as placing a telephone call to your credit card issuer. Gather any credit card offers you've received in the mail to get an idea of a target range for comparison, then call your creditor's customer service department and ask what the representative may do to help lower your rate. If you don't succeed the first time, call back another day and ask again.
Pay Yourself First
It's vital to pay more than the minimum on your debt to gain momentum on paying it all off. While your minimum payment may be $100, set the minimum higher in your mind, perhaps at $200. Then, when you get paid, you will know that you're paying yourself first by dedicating $200 to your debt and you won't automatically think you have money to spend. This tactic keeps you on track so that you plan for your income before receiving it.
Strategize
Depending on your finance methodology and psychology, you may choose to either pay off the debt with the lowest interest rate first, or the one with the lowest balance. The benefit to paying off the debt with the lowest interest rate is saving money by eliminating that hefty interest immediately rather than allowing it to sit and consume more money over time. Those who need to see their hard work in action may choose to pay off the smallest balance first, in what's also referred to as the "debt snowball plan." After paying off the smallest debt, you'll have more to contribute to the next smallest debt, then the one after that. Neither method is one size fits all, so it's important to consider what will work best for you so that you'll stick with it.
Reward Yourself
As you're working toward the larger goal of paying off your debt, it's important to keep yourself motivated as you reach each milestone. For example, put an extra $5 each week to the side as you're paying down your credit card. When you pay off that card, celebrate by treating yourself to something you like such as dinner out or a massage. Recognize your achievements to give yourself a boost as you continue to pay down your debt.
Contribute Windfalls
When you receive a bonus or monetary gift, put it toward your debt rather than spending it immediately. Take a rain check on your purchase, which will likely still be there for you once you've paid off your debt.
Find Professional Help
If you're stuck with no foreseeable way out of your debt problem, credit counseling is vital to getting back on track. Credit counselors will help you to create a budget and decide on a course of action. Your options may include debt consolidation, management or settlement. Visit the National Foundation for Credit Counseling website to find a reputable credit counseling agency in your area.
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