Piles upon piles of debt and no way out. If you want to reduce your debt, it may seem close to impossible. Don’t discourage. If you prioritize, there’s a lot you can do to remedy debt and get yourself back on track to being in the black.
Below are ten debt reduction strategies that will work successfully:
1. Stop the debt bleeding
If you want any debt reduction strategies to succeed, stop creating more debt. While you’re paying it off, don’t add any expenses to your debt. Cut down on spending, cut down on credit card use, create a monthly budget, and stick with it. If you don’t trust yourself to stop spending on credit, you can even voluntarily call the bank or credit card company to freeze your accounts.
2. Increase your debt payments
If you have room in your budget, the most natural way to remedy debt is to increase how much you’re repaying. Let’s say if you are casually putting in what you can, why not commit to a minimum 15% of your paycheck to put towards debt – a firm commitment makes sense. Small, consistent payments can count for a lot in slowly bringing down your debt and don’t have to affect your lifestyle in a significant way.
3. Sell items for cash
If you’re in dire straits and you need to clear away as much debt as possible, you may have products, items, or materials to sell. Look around the house. Make a list. Kijiji, Facebook, and newspaper classified ads, or even a garage sale are all ways to get some extra cash to quickly lighten your debt in a one-sum payment.
4. Negotiate a lower interest rate
If you call your creditors and ask for a lower interest rate, you may be surprised by what they’re willing to do. A lot of creditors will reduce one’s interest rate if there’s an established payment history and the account is in good standing. If you can’t negotiate a lower interest rate, low interest loans may be the way to go to pay back some of the money owed and to minimize interest paid long-term.
5. Prioritize your debts
Not all debts are equal. Some have higher interest rates while others have no interest owing. Create a priority list of your debts. For those that can wait, call them and try to negotiate a payment schedule of some kind. You may be able to find a workaround in terms of buying you enough time to minimize the interest you pay and eventually, get debt-free.
6. Transfer savings out and towards debt
Using a portion of your savings to cover a high-interest debt is a smart move. If you’re fortunate with savings to pull from, this will cut down on interest on large balances you won’t need to pay. You may not feel comfortable putting savings towards debt but it does help. Don’t deplete savings entirely. If you have some extra you can sacrifice though, use it. Every bit helps.
7. Do a budget and limit spending
The easiest way to hang onto more of your money is to not spend it. Look at your budget. Are there ways to lower your outgoing expenses? Can you cut down spending on TV, home phone, or Internet? Is there fast food you don’t really need? Is there a better way to do your grocery shopping? These are all important debt management questions that need to be asked and answered, cutting out any and all unnecessary expenses.
8. Can you increase your income?
For some people, there’s no more time or effort they can possibly put towards earning more income. For others, there may be opportunities untapped. Consider ways to make extra money. Taking on a part-time job can work or negotiating a pay raise is excellent. If you can commit to working as hard as you can for a few months, these debt reduction strategies will help to eliminate debt or to at least get it under control.
9. Start building an emergency fund
It may seem like a dumb idea to start pouring money into an emergency savings account but if you’re stuck in debt, it’s because you’ve probably gone to debt more often than not to use it during an emergency. By packing in a safety net for yourself to use in the future, you now have some place other than a credit card to go to for emergency spending. Focus on slowly building towards $1,000. Even if it’s only $20/paycheck, as the cliché goes, every bit helps.
10. File for bankruptcy protection
This is the absolute last thing to consider. If you have no other options and you’ve exhausted all available routes, filing for bankruptcy in extreme circumstances can discharge credit card bills entirely. Before you even consider this, we strongly encourage you to consult with credit counseling services. They can give you an honest opinion and assess your current situation, potentially providing debt reduction strategies or opportunities you didn’t otherwise know existed.