Taking on debt is a necessary evil for many in the modern economy. People borrow to afford cars, homes and education, and many decide to take on loans or use credit to fund smaller purchases. While borrowing can allow you to make purchases you wouldn't be able to make otherwise, high debt levels can result in burdensome monthly payments. Paying off debts is one of the keys to achieving financial freedom.
Make a Budget
A budget is a detailed list of all the money you make and spend each month. Making a budget will allow you to see where your money goes each month, providing valuable insight into your debt load and your spending habits. Look for sources of unnecessary spending that you can cut, allowing you to commit the savings to paying off your debt. You may find that you spend hundreds of dollars a month on things like drinks, clothes, entertainment and dining that would be better spent paying off debt.
Set Priorities
If you have several different debts with different terms and interest rates, you should prioritize your debts so that you pay off the most expensive debts first. For instance, if you have a home mortgage that has a 5 percent interest rate and a credit card balance with a 13 percent interest rate, you should prioritize paying off the credit card. Making the minimum required payments on all of your debts and then committing any extra money to paying off the debt with the highest interest rate can be an effective strategy to reduce debt.
Contract Creditors
Lenders make money by receiving interest from borrowers. If you are in danger of defaulting on a debt (failing to make a payment), your creditors may be willing to cut you some slack to help you make payments and avoid default. The U.S. Federal Trade Commission (FTC) recommends that consumers contact creditors immediately when having difficulty making ends meet and try to work out a modified payment plan that reduces debts.
Seek Professional Help
If you have difficulty getting on top of your debts on your own, consider seeking professional help. Credit counseling organizations help debtors create budgets and make plans to pay their bills and get on top of debt. The FTC states that many credit counseling companies are nonprofits and will work to help you solve financial problems, although consumers should be wary of any organization that charges a fee before reducing debt or that guarantees large debt reductions.
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