If you’re like most people, you probably don’t enjoy thinking about or dealing with debt. But the fact is, if you want to get ahead financially, it’s something you need to address. Thankfully, there are ways to reduce your debt load that doesn’t involve too much sacrifice or discomfort.
Debt doesn’t have to be daunting. By following these simple tips, you can start reducing your debt comfortably and get on track for a brighter financial future.
1. Make a List of Your Debts
Make a list of all of your debt, including credit cards, auto loans, student loans, and home equity lines of credit (HELOCs). List the interest rates in order from highest to lowest. This might seem like an odd first step, but it’s important to understand how much debt you have in total, to understand precisely how much you’re paying in interest and to prioritize which debts to tackle first.
2. Identify Your Bad Investments
All debt is not created equal. Most experts advise avoiding credit card debt at all costs because of the sky-high interest rates, sometimes 20 percent or more. Student loan debt isn’t ideal either, considering that most students graduate with an average student loan balance of $30,000. Auto loans and HELOCs typically have lower interest rates, but credit card debt will likely cost the most in the long run if you don’t pay it back quickly or in full each month.
3. Consolidate Your Debt
If you look at your debt list and see a jumble of different payments and interest rates, you should consider consolidating your debt. This is accomplished by taking out one loan to pay off several credit cards or other debts. If you can get a lower interest rate and take care of multiple payments at once, it will make the process less painful while saving you money in the long run.
4. Get a Second Job
If you can’t get a consolidation loan and still meet your other financial obligations, consider getting a second job. Working more hours will help you make bigger payments to reduce your debt faster and also give you savings opportunities that you wouldn’t otherwise have, like putting extra money into a retirement account or investing in stocks.
5. Evaluate Your Expenses and Make Changes Where Necessary
This is your chance to look closely at your spending habits and make some cuts where necessary. If you can reduce the amount of money that you spend each month on items like entertainment or transportation, you’ll have more money to apply toward debt repayment.
6. Sell Items You Don’t or Rarely Use
Do you have old electronics, furniture, or clothing lying around that you don’t use? Sell them to generate some extra cash that you can apply toward your debt. You probably won’t get rich by selling items on Craigslist, but it’s definitely better than letting them collect dust in the basement.
7. Negotiate Your Rates With Creditors
If you can’t consolidate your debt or get a second job, don’t lose hope. Most credit card companies are willing to negotiate lower interest rates if they haven’t already done so. You can call your creditors and ask them about negotiating your rates based on the amount of time you’ve had the account open, whether you use the card regularly, and your payment history. If you can get your interest rate reduced, all of that extra money can go toward paying down more of your debt each month.
Debt reduction doesn’t have to be a miserable process. Use these seven tips to help you get started and then follow up by creating an effective plan that works for you and your financial goals.
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