Ways to Cut Debt

Debt has become a fact of life for many American families. In 2007, the average American family paid over $2,000 a year just in interest on credit card debt, according to Adam J. Levitin, writing on the Georgetown Law website. But there are ways consumers can cut debt and reduce their financial obligations. Reducing debt improves cash flow and helps the consumer avoid extreme financial options, such as bankruptcy.

Minimum Payments

Your minimum monthly credit card payments are normally figured as 2 to 3 percent of your remaining balance, according to the Motley Fool website. Paying off debt at that pace will take years. If you pay more on your monthly minimum payments, that extra money will be applied to the balance and your debt will be paid down quicker. If your minimum payment is $50 a month, pay $150 instead. Work with your monthly budget to find the extra money you need to pay more on your credit payments. As you reduce your balance owed by paying more each month, your minimum monthly payments will start to drop. When you come to a month when your finances are tight, having the lower monthly payment will help.

Shop Around

A proactive consumer is always looking for better deals on any bill he is paying, according to the Christian Personal Finance website. Car insurance, home phone service, Internet provider and cellular phone service are just some of the bills you can examine annually to see if you can find better deals. Do not allow features of your existing programs to keep you spending more than you should. For example, your current car insurance provider may offer a discount after you have been with the company for five years. But if you find a provider that has a price that is even lower than your discounted rate, then that is worth looking into.

Lifestyle Changes

Spend one month examining how you spend money to find ways that you can change your lifestyle and save money. For example, if you keep a log of your monthly spending and see that you eat meals in restaurants four to five times a week, then you can cut that down to once or twice a week and save money. Walk to locations a mile or less from your home rather than driving your car, or purchase a bicycle that will pay for itself in the gasoline you will save. Bring your lunch to work and bring your morning coffee with you from home to save money each month.

Consolidation

Debt consolidation is a way of reducing your debt immediately and making it easier to pay off the remaining debt over time, according to the Lending Tree website. Examine your credit cards to see what interest rates you are paying for your cards, and take out a personal loan or home equity loan with a lower interest rate to consolidate the debt. The lower interest rate will cut your interest debt down, and replacing multiple sets of service charges and fees with one set of loan charges will reduce your monthly debt immediately.