7 Things to Do When Reducing Your Debt

7 Things to Do When Reducing Your DebtIt is no secret that Americans have a lot of debt. Here are just a few of the statistics.

You do not want to be trapped with a large debt load and no assets. Develop a plan and incorporate some of the following ideas.

  1. Prioritize Your Debts – Not all debts impact you equally. Examine your finances and identify the debts with the highest interest rates. Pay off the highest interest rate debt first.
  1. Negotiate, Negotiate – Whether it is the interest rate on your credit card or the cost of cell phone service, call and ask for a lower rate. Think of it this way, businesses negotiate with vendors to reduce their costs all of the time. Take the same measures to avoid unnecessary expenses.
  1. Beware Careful with Debt Consolidation Plans – It is normal to feel embarrassed and overwhelmed by your debt load. You might also be a shy person who gets nervous at the thought of negotiating with a company. It is tempting to use a debt consolidation company. Not so fast! Many “professional” debt consolidation plans/services are not beneficial to you. A credit card issuer might give the same interest rate reduction to the debt consolidation company that it would have given to you. Unfortunately, you now owe the negotiator a fee.
  1. Examine Balance Transfers – The balance transfer is another strategy that can have more downside than upside. Some cards hit you with a balance transfer fee that might total hundreds of dollars. If you try shifting debt from card to card multiple times, it lowers your credit score. A lower credit score equates to a higher interest rate for a car loan or mortgage. Do not make a balance transfer unless the deal is sound (i.e. 0% rate) and you pay off the card before the teaser rate expires.
  1. Monitor Your Expenses – How much do you spend on restaurant meals (breakfast, lunch, and dinner) during the week? Do you go shopping for a new coat and come out of the store with a new outfit and shoes too? “Convenience” and impulse buying really add up quickly for people. Reduce the number of times you eat a restaurant meal per week. Make a shopping list, stick to it, and do not get lured into buying extra items.
  1. Apply Extra Money – Did you earn a bonus at work? Receive an income tax refund? Inherit money from a relative? If you received a windfall, use it to pay down debts.
  1. Make More Money – You do not want to spend money frivolously. However, you need to maximize your earnings too. If you’re a top performer at your company, make a case for better compensation during your next review. Consider taking a side job and applying all of your earnings from it toward debt reduction.

Enjoy the Fruits of Your Labor

High debt loads cause anxiety and threaten your long-term financial freedom. One researcher found that households without credit card debt had 3 ½ times more savings than those with credit card debt. Do not let yourself become just another sad case. Start reducing your debt today.

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