Tips for Eliminating Debt
If you feel overwhelmed by debt, you’re in good company. Research by the Associated Press reveals that 75% of Americans are in debt. A National Foundation for Credit Counseling survey shows one third of American families pass credit card debt from month to month.
Some debts are hard to avoid. Houses, cars, and education loans account for a good portion of personal debt. Most people need to borrow money to finance these heavy personal expenses. Avoiding debt may be unrealistic, but everyone can learn how to manage debt properly.
Many debtors manage fairly well if they can keep up with payment installments. The problems begin when their debts go beyond their ability to pay. At this point, payments become irregular or even cease. Default and delays in loan payments mark the start of a slippery slope. Creditors report their customer’s debt difficulties to credit bureaus. Sometimes they start costly legal action. Credit report bureaus react to these bad credit reports, and lower the customer’s credit score. Lenders refuse to give fresh loans, or they demand high interest rates. This situation calls for an emergency debt elimination campaign.
Organize Credit History
Nobody can bring debt under control without good knowledge of their debt and how it divides. The first step in any debt elimination strategy begins with this thorough survey. Gather bank and credit card statements, credit reports, and other credit history documents. Work out your total debt burden, and take a close look at its components. Special computer programs are available to help with personal budgetary tasks. Alternatively, enter this data into a standard Excel sheet or use pen and paper.
Set Debt Payment Priorities
All debts are not equal. Some loans carry higher interest rates and monthly payments. Uncover which debts need immediate attention. It makes sense to first pay off debts with the highest interest rates. Reducing these debts achieves maximum savings. Another priority is to focus on paying any debts that have become the subject of legal action. If possible, make more than the minimum payment to reduce major debt faster. For less-pressing and low interest debts, make the minimum payments required.
Managing a large number of debts over different credit cards and loans is a tough challenge. To combine these debts into a single loan with one monthly payment makes debt management much easier – this is the debt consolidation concept. Usually the new loan has a lower interest rate, but the payment period extends over a longer period. Consolidation helps some debtors handle their burden, but others don’t want to put off ridding themselves of debt any longer.
Cut Down Credit Card Spending
Without real effort to restrict credit card spending, the best debt reduction strategy only brings temporary relief. Credit cards are very useful, and it is safer to carry around credit cards than large amounts of cash.
The big credit card disadvantage is the way cards encourage spending. There is a world of difference between cash and credit card purchases. Cash purchases stop as soon as money runs out, but credit gives the shopper freedom to overspend. It won’t be easy to shift the balance between cash and credit, but this is one of the most effective debt elimination strategies available.