Being in debt is a major stress faced by millions of people worldwide. Sometimes the feeling of being in debt can feel like an inescapable, dark hole. When faced with this situation, it is important to know that the first step is realizing that you can take action to get yourself out of debt. Reducing the amount of money owed to other people and organizations can happen if you follow some basic steps.
Avoid New Debt
When faced with a seemingly insurmountable task like reducing a mountain of debt, it is important to focus on simple, manageable steps as a starting point. In this instance, this means avoid taking on new debt to pay the old. It is tempting to open up a new credit card or go to a payday loan business to pay bills and other debt, but doing so only digs the hole deeper. Fight the urge and work with your existing debts first.
Track Spending
The best way to examine personal finances and come up with a solution to reduce, or completely eliminate, debt is to track spending. By keeping tabs on every dollar that goes out, you can get an accurate picture of where your money is going. After spending some time tracking your money, take a look at what you are spending it on. Use this knowledge to find areas you can cut back on, such as eating out or entertainment expenses, and instead spend that money on paying down debt.
High-Interest Debt
Paying off items with the highest interest first is a technique guaranteed to lower the overall amount of your debt and put you on a path towards financial well-being. High interest debt has a snowball effect that will keep adding to your debt. In order to avoid this, you need to pay more than the minimum required amount every month. Bankrate.com recommends paying "double, triple, quadruple minimum payments." Paying more than the minimum balance is a good idea to reduce debt, regardless of the interest rate.
Contact Creditors
Some people take to avoiding calls from creditors, but this doesn't get them anywhere. Creditors have a single objective -- get the money that is owed to them -- and this works in the favor of those willing to communicate. If you want to reduce your debt, be proactive. Call the credit companies and try to work with them. See if they are willing to negotiate a lower interest rate in exchange for setting up direct debit payments. Another option is to find out if a one-time payoff for a lower amount is possible. Doing so will be listed on your credit report as a charge off, which appears negative to future creditors.
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