If a debt is hanging over your head and creditors are calling your house, your situation might seem bleak. While you can't snap your finger and get rid of debt, you can take practical steps to quickly minimize how much you owe and regain control of your financial life.Related links:
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Some people get into debt because they're trying to keep up with the Joneses, or because they're living above their means and using credit cards to make ends meet. Since it's much easier to accumulate debt than to pay it off, it's important to be conscious of how much you're charging and financing.
You can't turn back the hands of time and erase the debt you already have, but you can make smarter decisions going forward.
1. Slash your interest rates
Pull up your credit card statements and review your current interest rates. If you have a good payment history and a decent credit score, you might qualify for a better rate — anything under 13%.
Give your credit card company a buzz and ask for a lower rate. The rep might be able to offer an on-the-spot reduction. Lowering your interest rate also reduces your minimum payment, but it's important to continue making the higher payment.
This extra money helps reduce your principal balance sooner, thus erasing the debt faster.
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2. Sacrifice your free time
Between your house payment, utilities, and other essential bills, you might not have extra cash to pay down debt. In this case, you have to get creative and consider ways to drum up extra money.
This might involve working overtime or getting a part-time job. Sacrificing your nights and weekends might be the last thing you want to do, but think of this as a temporary sacrifice for the betterment of your financial health.
If you can earn an extra $100 a week, that's $400 a month or nearly $5,000 a year that can go toward paying off credit cards and other debts.
3. Shop utility rates
Changing your utility provider might seem difficult, but the more information you receive on this type of transition, the easier it will seem. Depending on where you live, you might have the power to choose your utility provider.
And since utility rates can vary by provider, making a switch can save you money every month. Between shopping around for a new gas provider, electricity provider and downgrading your cable package, you can save a great deal and then apply the difference to your credit card debt.
If you're able to save $50 a month, that leads to $600 a year that can go toward an outstanding balance.
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4. Ditch your car
Some people can't imagine life without their own set of wheels. You have the freedom to come and go as you please, and you don't have to bum rides or wait for a bus.
There's no denying the convenience of having your own car, but if you're burdened with large debt, now isn't the time to have a car. It might be financially beneficial to temporarily get rid of your car.
You'll save money because you won't have a car payment, car insurance, or auto maintenance. And with this savings, you can pay off credit card debt and student loans faster.
Of course, this approach doesn't work for everyone. You have to consider where you live and the availability of public transportation. If you have family or friends living nearby, it might not be too difficult to get rides or borrow a vehicle.
5. Shop smart
If you have a love for clothes, electronics, and home decor, you might get into debt because of a shopping addiction. You're always going to need something, so you can't give up shopping altogether.
But you can shop smart and look for cheap deals, so you're able to pay with cash and not credit. For example, many retailers invite customers to sign up for email alerts.
You'll be notified of sales and special promotions, and enrolling in a rewards club lets you earn points toward free purchases.
6. Use the debt pyramid approach
If you're trying to eliminate debt quickly, the pyramid approach might work. Categorize your debt according to how much you owe and the interest rates of each one.
With this approach, you first focus on paying off your debt with the highest interest by making higher payments, while paying the minimum on your other debts.
Once your highest interest debt is gone, take the money you were spending on this debt and apply it to the next highest and so forth.
This is a simple way to increase your monthly payments, lower your interest charges, and pay off debt much sooner.
Too much debt can lower your credit score and eat at your disposable income. Eliminating debt takes patience and determination, but you can reach this goal as long as you stick with your plan.