Simple Ways to Get Out of Debt

Eliminating or reducing debt has the advantages of saving you money in interest charges and in the cost of items linked to your credit rating, such as insurance and mortgage rates. In addition, debt reduction is physically healthy, as excessive debt can lead to stress-related health problems. The steps you can take to get out of debt are simple and effective.

Be Frugal

Keep track of your spending so you can see where your money goes, then cut out as many nonessential items as you can. Look for ways to be thrifty. You can pack your lunch instead of eating out, use coupons at stores and restaurants, opt for less costly brands when shopping or get your news online rather than buying a daily paper.

Use Cash

Using cash instead of credit helps keep you aware of your spending. You will find it easier to stick to your budget if you pay cash and carry only the amount of cash you need. If you are carrying balances on your credit cards, paying cash helps you get out of debt faster, since you will not increase the amount you owe.

Consolidate Debt

If you can consolidate your debts at a lower interest rate, you can save money and pay off balances faster while having fewer payments to track. If you have a credit card with low interest and no balance, transfer your higher rate balances to this card. You can also look into a lower interest loan from your bank, credit union or even family and friends.

Make Larger Payments

Devote as much money as you can afford to paying debts and pay more than the minimum due. The minimum due is only a small percentage of the total you owe; interest continues to accrue on the balance. If your balance is large enough, it is possible for the added interest to be more than the minimum you paid. Making small payments can give you a false sense of security while keeping you in debt.

Prioritize Payments

Debts with high interest rates cost more, so it is wise to pay those off first. Budget the largest amount of your available money to your highest interest debt. When that is paid, use the largest amount to pay the next highest. Continue this strategy until all debts are paid.

Get Reliable Help

Sometimes you need help dealing with creditors or coming up with a plan for payment. Some nonprofit agencies offer programs to negotiate with creditors on your behalf and assist you in making a budget. You can find an agency locally or online. Avoid companies that promise to fix or repair your credit and charge a fee. The only way to get and keep a good credit rating is to develop the habits that help you get out of debt and stay there.