10 Tips For Debt Reduction

September 20, 2007 · Filed Under , · 3 Comments 

Destroy Those Credit Cards!Debt sucks! Especially high interest credit card debt. I can remember it keeping me up at night and affecting my overall happiness. I have been getting a lot of email from readers recently looking for more details on how I got out of debt. When I became serious about getting out of debt, I said to myself, “How do people do it?”, it seems so overwhelming. So just like the folks that have been contacting me, I started researching what others had done. This research put me on the right path to getting out from under all of my debt. The idea behind this post is to put together everything I learned in one spot. So here we go…

  1.  Change your state-of-mind. Set the goal of getting out of debt as one of the highest priority in your life! You are worth it! Yes, it takes hard work and determination, but believe me, it is all worth it.
  2. Stop spending! I know this is as obvious as saying the “sun will come up tomorrow morning”, but it needs to be said. Cut up your cards, freeze your cards like Lynnae from BeingFrugal.net, bury them in the backyard, whatever it takes for you to stop using them. Just carry enough cash that you will need for the day.
  3. Learn to value money again. Start collecting cash. Put a seperate $20 bill in a few envelopes, mark the outside with ”$20″, seal them up and use these envelopes for your spending. Believe me, when you have to open the envelope and use the cash to buy stuff you will regain the ability to see the value of a dollar. This helped me greatly. It snapped me out of the ’slide the plastic’ mindset where you spend, spend, spend and worry about paying it back later.
  4. Find extra income. This may seem hard at first but it was crucial for me. I picked up a 2nd job at The Home Depot to help with my debt. Look into a 2nd job, freelance work, sell things on eBay, have a yard sale, whatever it takes.
  5. Set up a budget. Sit down with a piece of paper or an Excel spreadsheet and put down all your monthly expenses in one column and all your income in the other column. Be honest with yourself when doing this. Remember to include all expenses not just the obvious stuff. Include money spent on meals, coffee from Starbucks, trips to the vending machine, etc. At least put down a rough estimate, this will give you an idea of how much money you can save per month by cutting out some of the frivolous stuff. I did this and I put the money saved straight to lowering my debt.
  6. Pay higher interest rate cards first. If you have three credit cards, allocate more money each month to the card with the highest interest rate. The quicker you lower the balance on that card the less in interest you will pay each month.
  7. Try to consolidate your cards. If you have a solid payment history you may be able to consolidate all/some of your credit cards to a lower interest rate card. Often you can get a rate as low as 3.9% for the entirety of the loan. Be careful with 0% rate cards as they typically only last for a specific amount of time. Only use a 0% card if you can pay off the debt in its entirety before the offer expires. Otherwise, you could get stuck with a much higher interest rate. Consolidation is also convenient because you only have 1 bill per month to hassle with.
  8. Ask for a lower rate. If you are unable or unwilling to consolidate your debt, call each of your credit card companies and ask them for a lower rate. This works. They will typically lower your rate if you have a solid payment history. They do this because they want to keep you from looking into consolidating your debt at a lower interest rate. In other words, they want your money for as long as possible!
  9. Overpay your interest charges. Mathematically, the only way you will ever be able to get out of debt is to make a monthly payment higher than your monthly interest charges. This is a must do.
  10. Refinance you home. By refinancing your mortgage so you have a lower monthly payment, you can free up more money to help pay off your credit card debt. I have a friend that did this and he highly recommends this as an option.

Note: I am sure this list is not comprehensive, so I welcome you to add more ideas by leaving a comment. Thanks!

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Comments

3 Responses to “10 Tips For Debt Reduction”

  1. Richard James on September 20th, 2007 9:00 pm

    Two other techniques I have used to reduce debt are:
    —-Pay mortgages off early and save large amounts of mortgage interest by making one extra monthly payment each year.I thought you had to increase each monthly payment by 10%but acccording to Bob Brinker on his “Money Talk ” program on KGO radio a once annual payment will accomplish the same thing.

    —Save a definite amount of $ from each paycheck.Be realistic and stick to that amount even if you pass on an incidental some months.
    I am an old dude but while in my 20s I set $50 aside each month and in 5 years it bought me a triplex apartment house.Of course those numbers woudln’t work today but you get my idea.

  2. Kyle on September 21st, 2007 7:04 am

    Good tips, thanks Dad for the post. Wow, you figured out the Internets, well done!

  3. Lynnae @ Being Frugal on September 26th, 2007 2:09 pm

    Great tips! I’m partial to freezing the credit cards. ;)

    And calling to lower your credit card rate is a great idea, and it amazes me how easy it is to do!

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