Debt Reduction Tips

Bad credit can affect one's ability to get or keep a job. Employers frequently use credit reports when hiring employees or evaluating them for promotion or retention. Excessive debt, besides affecting employment, is also a personal strain. That strain wears over time. Below are a few ways to reduce debt and get back on the right track.

Essentially there are two primary methods for whittling down debt – spend less or earn more. Cutting spending is usually the quickest way to pare the debt balances, unless you receive a big raise or take on a second job. Another option, for some, is to sell assets and use the proceeds to pay off debt.

Budgeting and Spending

1)Examine your finances and current spending patterns.

2)Prepare a budget.

3)Set priorities. Decide between what you want and what you need.

4)Avoid impulse purchases. Stick to the budget plan.

5)Think twice before purchasing snacks and sodas during the day. Take a lunch to work rather than eating out every day. These expenses add up over the course of a month.

6)Don't make frivolous purchases with your credit card if you cannot pay off the balance when the bill comes due.

7)Cut up extra credit cards so that you will not be tempted to add to their balances.

8)Cut back on purchases and apply the savings towards your debts. Don’t use the extra cash to purchase more stuff.

9)Downsize to a smaller home or less expensive automobiles.

Strategies

1)Look for credit cards with interest rates lower than the cards you currently have. Check the fine print of the new cards to make sure it is not just an introductory teaser rate being offered.

2)Move balances on cards with high interest rates to cards with lower interest rates.

3)Keep an emergency savings of three months expenses (six months is preferable). Use savings in excess of the emergency fund to pay down your debts.

4)Obtain copies of your credit reports from the three credit bureaus (Experian, Equifax, and Trans Union). Check them thoroughly for errors and inaccurate information. Correcting any errors may improve your credit score and help in obtaining a better interest rate on loans.

5)Pay more than the minimum balance each month on your highest interest rate debt, while paying at least the minimum amount on your other debts. (One exception: If you have debt on a card with a low introductory teaser rate, try to pay this off before the rate jumps.)

6)Develop a written plan to systematically pay off debt. (Debt Analyzer does this for you.)

7)Look at consolidating debts into a new loan at a lower rate. (The Loan Consolidation method in Debt Analyzer will help you determine any benefits.) Be sure to include any finance charges when making comparisons. Caution: Do not start charging again on the newly freed up credit cards – or you may wind up in worse financial shape than before.