Simple Ways To Reduce Debt
This is often one of the hardest steps in getting things back on track. For starters, pull together all financial statements and your most recent credit report. Make a list of all creditors and itemize balances owed, interest rates, annual fees, and monthly minimum payments. Be sure to include all auto loans, payday loans, credit cards, personal loans, and any other debt you may have outstanding. Focus on other debts first as home loans and student loans normally have longer terms and much lower APRs.
Determine Your Budget
Once you have compiled all of your financial information, calculate your monthly income after taxes. Deduct expenses such as rent or mortgage, utilities, groceries, insurance, childcare and student loan payments. After these expenses have been accounted for, determine how much you have to put towards your debt plan. If the amount is small, find areas that you are able to reduce or cut back on to increase your allocation towards debt. Some of these items may be downgrading cable service, limiting your driving, or canceling monthly subscriptions. The more have to put towards your debt plan, the faster the debt will wash away.
Plan of Action
Once your financials have been figured, it is time to take action on your debt reduction plan. This is where your itemized list and adjusted monthly budgets come into play.
Set all your expenses to the minimum payment except that with the highest rate or balance. The excess amount saved from paying the minimums should also be allocated to this debt. Pay on this month after month until the account has no balance. Continue payments until all debts have been paid in full. This may sound like a crazy process, but has been proven to be one of the most efficient methods to pay off debt.
Follow-Through Till The End
Following your debt reduction plan to the end can seem like a never ending process. Make a chart or spreadsheet to clearly track all of your progress. While the amount put towards your largest debt may vary, work to make sure you remain as consistent as possible. Set large goals for yourself and celebrate when you reach them. Keep pushing forward and before you know it, you will debt free!
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