Articles

• How can I reduce my debt?
• Managing your credit reports
• Investing for retirement
• Wealth Management
• Trading Online Stocks?
• Basics of Forex Trading

How to reduce debt

In a highly materialistic world where the word plastic has attained tremendous significance, we are often tempted to purchase more than our bank balances can afford. As a result consumer debt has increased manifold leading to bankruptcies and financial struggles.

So far the accumulation of personal savings was given prime importance. Although, it is an essential element in our financial well-being, reducing accumulated debt is even more vital. Personal debt ranges from home loans to credit card bills as well as educational, marriage and health related expenses. Debt reduction is extremely necessary as it contributed to your creditworthiness in qualifying for personal, home and business loans. If the gap between your debt and income is very high, lenders will automatically remove you from their list of potential ‘loan eligibility’ list.

The million dollar question then is How to reduce debt?

1. The first thing to remember when falling into the debt trap is to resist temptation. Before making any untoward purchases, stop to consider if the item that you are looking at is really necessary. If it is not avoid it for a later date when you can afford to splurge. If not, investigate other alternatives with lower costs. The important thing to remember is to spend less than you make.
2. Credit card debt – Do not use credit cards to supplement the gap between income and expenditure. That will not reduce debt but increase it exponentially. Cancel the credit cards that you do not need and those that do not carry a balance. Also, transfer balances from cards that carry high interest rates to lower interest rates. This will reduce credit card debt to some extent. Use checks, cash and debit cards to curtail spending. This way you will be aware of how much you can afford and what your expenditure is.
3. Pay more than the monthly minimum required by your credit card company to avoid accumulation of interest which is often higher than the principle that you pay. Also, pay off all your credit card bills in order of the interest accumulating; the higher the interest, the earlier you pay off the balance of that credit card.
4. Debt consolidation – Check out low interest loans that can be used to consolidate high interest credit balances.
5. Cut back on your retirement contributions (IRA) and use the funds to pay down the debt.
6. Pay packets earned every month should be directly deposited into a high-yield savings or money market account.
7. Reduce the use of your ATM cards as many banks charge for withdrawal fees which eat away unnecessarily at your available funds.
8. Debt-management counseling – These are low cost organizations that deal with your creditors to reduce monthly payments thereby helping you go back on the fiscal track.
9. Prepare a monthly budget for you and your family. This will eliminate unnecessary spending and allow you to focus on essentials.

The other option to reduce debt are to borrow from friends and family. In such a case, ensure that all is in writing where installments are paid back diligently. Contact your creditors who may assist you in solving your problems. They may also negotiate lower interest rates rather than risk total default on the principle.

Another solution to debt consolidation and debt reduction is borrowing against home equity. It is one of the safest bets and offers you potential tax advantages and consolidation power. Manage credit report periodically to ensure there are no errors.

Developing a clear picture of your financial position is crucial in debt reduction. It helps towards debt consolidation and eases the financial burden off your mind. Try to live within your means and devote part of your income for investing in the future retirement and not paying for the past.