There are many ways for you to reduce debt. But you shouldn’t be quick to jump on any strategy that you encounter. You have to make sure that you are choosing the right one.
First of all, you have to consider what’s causing you to go into debt. For instance, 1 out of 4 people said that they were forced to use their credit cards more because of the pandemic. If the pandemic caused your business to shut down temporarily, then your problem is only for the short-term. There’s a specific strategy that’ll help manage your debts while you are temporarily in financial hardship.
But if you lost your job because of the recession, that’s a long-term problem. So you have to choose a different strategy to reduce debt.
There are other things to consider – apart from your ability to pay it off. The type of debt you owe is also important. Even your future financial goals should be considered. Make sure you’re considering all the right factors so you can make the right decisions as you reduce all the debts that you owe.
4 strategies to reduce debt effectively
Before you choose a strategy to deal with your debt situation, you have to look at all your options first. Some people are in a hurry to reduce debt that they just pick the one that’s presented to them first – without researching other strategies. Take the time to research your options. It’s the best way for you to make an informed decision about your debt situation. The more you know, the more you’ll find options that’ll make debt relief easier.
To start with, here are 4 options that’ll help you reduce debt.
Ask for a lower interest rate
The first is to simply call your creditor and ask them if they can lower the rate of your high-interest credit cards. We all know that credit card debt is one of the most notorious when it comes to interest rates. Not to mention the fees and other charges that you have to pay. If you want to save money on your debt payments, get the courage to talk to them.
Start by asking them if they can reduce your interest rate. Some people don’t know this, but you can call your creditor and simply ask them to do this. You might be surprised that most of them if you know how to negotiate, will agree. They’d rather do it than lose you as a client – especially if you’ve been good at meeting your monthly payments.
If you can get them to lower your interest rate, you’ll enjoy a lower monthly payment.
Pay more than the minimum
Another thing that you can do to reduce debt is to pay more than the minimum. Every credit card bill shows you the minimum payment requirement. As long as you meet this amount, you don’t have to worry about the negative effects on your credit score. But here’s the catch. Creditors don’t mind that you stick to the minimum payment because it means you’ll be in debt longer. The longer it takes for your credit card debt to be paid off, the more interest you end up paying for.
To avoid that, you have to make an effort to pay more than the minimum requirement. Even a hundred or so will make a huge difference in reducing the overall amount of debt that you’ll end up paying for the debt.
Use debt consolidation programs
An effective way to reduce debt is to use a debt consolidation program. There are several options for you to choose from.
One is borrowing a debt consolidation loan. This option is best for those who have a high credit score. That way, you can enjoy a low-interest rate on your loan.
If you own your home and it has enough equity, you can also use it to consolidate your debts through a home equity loan. Since this is a secured loan, you get a low-interest rate. That can also help reduce your debt payments.
A balance transfer is also an option that you can use. This involves a credit card account that’s offered with an introductory promo of 0% interest. If you can pay all your debts within this promo period, you get to enjoy 0% interest. That means you’ll just be paying the amount that you transferred. That’s a huge debt reduction.
Make sure you look at all these options to determine which one will help you reduce debt the most.
Earn more to pay more
Finally, you can also succeed in reducing your debts if you find a way to earn more. There are many options for you to do this.
You can ask your employer to give you a raise. Or you can find a side gig that you can earn from. Setting up a passive income source is also an option that you can use. If you have some extra time in your hands, you can invest more hours working to get the extra money to pay off your debts.
Even if you’ve paid off your debts, the extra source of income is a good idea because it can help secure your finances. You don’t have to stress too much about losing your job because you have another source that can finance your needs. If you set up a passive income, you don’t even have to tire yourself too much to earn extra. This money can be used to improve your life significantly even after you’ve paid off your debts.
Habits that will make it easier to reduce debt
Apart from the strategies you can use to reduce debt, there are also habits that you should develop to help make this happen.
Here are two of them.
Live below your means
Most people will say that you should live within your means. But it’s more ideal to live below your means. So if your income is $10,000 your expenses should be lower than that – like maybe $8,000. That way, the $2,000 can be used to improve your financial position further.
The best way to do this is to create a budget and follow it. It’s not enough that you have a budget plan. Make sure you follow it. Because believe it or not, almost 8 out of 10 people who have a budget plan fail to follow it. Make sure that when you create a budget plan, it’s realistic enough for you to be able to follow it.
Stop using unnecessary credit
Nobody’s really saying that you should stop using credit. But you have to make sure that you’re using it wisely. One way to do that is to keep yourself from using credit unnecessarily. This is very important. Don’t use it if it’s not necessary.
It helps to have a list of what you need before you buy anything. That way, you’ve thought about every expense. Not only that, you should include your credit expense in your budget. It‘ll help limit your credit card spending.