If you find yourself in debt, there are many steps you can take to reduce your current debt load.
- Know the deal
Often times we receive credit card offers in the mail touting a 0% Introductory Offer on all Balance Transfers. In other words, they offer to give you an interest free loan for the next 6 months on any balance you transfer to them. The problem is in the fine print. Clauses that escalate the interest to 20% or more on the entire balance if not paid in full at the end of the Introductory Period can cost you a fortune. Other clauses to watch out for include an Interest Rate Escalator for any late payment (even a day late in some cases).
The bottom line is to read all of the fine print before you sign the deal.
- Place away the credit card
Credit cards make it too simple to spend money. Its like having a magic genie. You wish for things and they appear. The only problem is that the come with a huge cost down the line.
For whatever reason, most of us spend cash much more conservatively.
Make yourself a deal. See if you can place away your credit card for the next 90 days. You will be stunned to see how simple it is and how much you can reduce your debt load by paying by only cash. After the initial 90 days, try another 90 days.
- Make a budget and stick to it
One of the largest reasons people get in debt is that they don’t have a excellent financial plot. Take out a sheet a paper and on the left side write down your monthly take home income. On the right side, write down your re-occurring debt. The difference is the money you have to live on each month.
- Track your monthly expenditures
Now that you have made your monthly budget, you need to track how you are doing against that budget each month. All you need to do is make a record of all the money you spend and compare it back against your budget.
There are some fantastic and inexpensive software tools to help you track this information. One of the largest benefits to these software packages is that they help you really see where your money is being spent over the course of time.
- Know the difference between essentials and luxuries
Essential items include your mortgage or rent, your utilities, your car payment, and some part of your food bill. These are expenses you most likely have to live with out. On the other hand, there are luxury items such as Starbucks coffee (I know some of you may feel that this is an essential item), that can be eliminated or substituted for. Each of us can probably find a hundred dollars a month or more in luxury items that we can eliminate.
- Pay on time
Another critical factor in reducing your debt is to pay your bills on time. Late fees, penalties, and higher interest rates due to late payments all take money out of your pocket.
- Pay more than the minimum
If you are carrying a balance on your credit card, you need to pay more than the minimum. Just paying the minimum payment on a credit card can stretch your payments out to 20 years or more.
- Reduce items of diminishing value
Not all debt is terrible. If you are buying items that increase in value over time, like a home or bonds, then some debt is really a excellent thing. The trick is to reduce the number of items that diminish in value over time.
- Find your “Hidden Money”
Each of us has what I like to call “Hidden Money”. For example, let’s say your current mortgage is at 8% interest and interest rates fall to 6.5%. Under these circumstances, refinancing your mortgage can save you hundreds of dollars per month.
If you spend time analyzing your options, you will find that you have many sources of Hidden Money. Could changing phone carriers be a source of Hidden Money”? Could switching to a satellite dish from cable TV be a source of “Hidden Money”? Could banking at a different bank with lower fees be a source of “Hidden Money”?
The point is that there are dozens of ways you can unlock your sources of “Hidden Money” each month, you just need to go and find them.
- Negotiate with creditors
The first thing you need to know is that your creditors do not want to see you default on a loan, miss payments, or declare bankruptcy. It’s terrible business for them when they can’t get you to pay. This knowledge allows you to negotiate with them. If you are having distress making your payment, or know that you will be late, get in touch with them and let them know what is going on. They most likely will be willing to suspend any late charges if they know you intend to make your payment at a later time that is specified. Given the right set of circumstances, they may even be willing to give you a lower interest rate.
You don’t know until you question!