Steps for Debt Reduction
The economy is not as strong as it could be, and while it’s struggling along, more and more people are finding themselves getting deeper and deeper into debt. After all, you need a place to live and food to eat, but circumstances beyond your control have now left you owing more money than you can payback. However, consumer debt reduction may just be the silver lining you’ve been looking for.
Of course, there is more than one way to reduce your debt. Which one you choose will depend on your personality, as well as your current situation. That being said, here are some things you can do whichever method you decide to use to get yourself off to a strong start.
- Know exactly where you are. It’s time for a gut check. You need to write down all of your debts, interest rates, household expenses, and any other money that is being spent. Be specific, and account for every single cent. Be sure to write down all of your income, and remember to list any liquid assets you may have that you can apply toward lowering your debt.
- Set your priorities. You need a roof over your head, water, and food to eat, so those things should be your highest priority. Utilities and medication will also be near the top of the list for a lot of people. Next is a vehicle, especially if you live in the country, or have no other way of getting to work.
Does this mean you should give up all of the little “treats” in your life? Not necessarily, but you need to make sure the necessities are taken care of first. After that, you can start deciding which things are more important. Because we are talking about consumer debt reduction, it makes sense that the less necessary items should be the first to go. For example, do you need a new phone, or could you live with the old one for a few months if it meant you could get out of debt?
- Reduce the amount you owe. Yes, you will be chipping away at your debt with each payment you make, but we’re talking about reducing it all at once. The way you do that is by talking to each of your creditors. They may be able to forgive late fees, lower interest rates, or remove other arbitrary penalties. If they won’t do any of that, then you can always consider getting a debt consolidation loan which will have the same effect.
- Increase how much you pay. The more you can pay toward your debt, the quicker it will be paid off. Now that may sound obvious, but the reason this is so important is that it negates the effect of compound interest. Depending on how much you owe, and the current interest rate, paying double the minimum payment could allow you to pay off your debt eight times faster! How’s that for consumer debt reduction in action?
Take up a second job for 3-6 months to reduce the timeline for debt repayment. If you pick up a second job with the almost same pay as your primary job, 4 months of your work can repay 1 year of debt. In general, the average person pays 40% of their income to debt. If you can earn 100% more than normal, you can repay 3 times that of your normal repayment. For 5-year loan repayment can be done in 1.5 years.