How to reduce your debt, a simple step by step guide for 2016
Many people use a debt consolidator to get out of debt and there is nothing wrong with that, however, with the proper planning, and the ability to follow a plan on your own, you could do it yourself and save the money you would have to pay a debt consolidator.
So where do you start? Gather up all your debt; retail credit cards, major credit cards, outstanding bills, basically everyone you owe money to, and add up the total to see how much you actually owe. Keep in mind if you have a mortgage and a car payment, but are not behind, these still need to be the bills you pay first, regardless of debt. Keeping a roof over your head and having a way to get to work are also key to reducing your debt.
Next, look at your income and regular expenses. From this you need to create a budget. If your debt is high, then there are a couple of things you need to do; first, stop using those credit cards, and second look at your other expenses and see where you can make some cuts. For instance, if you eat out quite often and it isn’t reimbursed as a business expense, it’s time to start eating at home. There are many very simple, yet delicious meals you could make at home that cost pennies on the dollar compared to eating out.
If you have some small debts (say less than $100) pay them off first. Extending those small debts over a long period of time will end up costing you four times what you actually spent. With your major credit cards, look at how many you have and consider how many you really need. If you have more than one or two major credit cards, you need to consider which one or two you want to keep and close the other accounts out. The easier it is for you to pay on credit, the easier it is for you to get deeper in debt.
A big part of reducing your debt is to spend less money. Most of us live above our means and that results in debt. Now, a car payment and a house payment don’t necessarily count as living above our means unless you have a mortgage that is really more than you can afford or a car payment for a car that is more expensive than you need, but just wanted. For example, no one really “needs” a Ferrari, so if you have a really expensive car, consider trading it in for something more affordable.
Now it’s time to look at those larger credit card or other types of debt. For the cards you have decided you are going to close the accounts on, call the company and see if you can work out a payoff deal. That is what professional debt consolidators do, and there is no reason you can’t try to negotiate one for yourself. You would be surprised at how many major credit card companies are willing to reduce your debt if you make one lump sum payment, or if you agree to a payment schedule.
You can also do some other debt consolidation on your own. When you are thinking which major credit cards to keep, look at the ones with the least interest; those are the ones you want to keep, while throwing away the higher interest cards. Some major credit card companies will even offer to reduce your interest rate if you move your other debt to their card. Then not only do you get a lower interest rate, but you also are sending out fewer payments each month, which makes it easier to keep track of your money. It may take some time and some diligence but if you are serious about getting out of debt, and willing to put the work into it, you can do it without feeling like you gave up everything to get there.
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