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Debt Reduction Strategies

Helpful Saving Tips

Eliminate Your Debt
No one ever plans to bury themselves in debt, but many people find the way without much planning. Truth is, that’s the problem-not much planning. You can go to a debt counselor or a debt consolidation company for help, but they cost money too. With a little discipline, you can gain control of your finances without any outside help. The following steps will help you to focus on your particular financial issues and help you formulate a plan to reduce your debt.

Develop a Budget
Gather all of your bills, financial reports and a copy of your credit reports and take an objective look at your finances. Make a list of all of your outstanding balances, the associated interest rates, and monthly payment amounts for all of your expenses. Now separate your debt into two lists, expenses and debts. Expenses include your rent/mortgage payment, childcare, student loans, utilities, groceries, and insurance. On the list of debts, you should include auto loans, personal loans, credit cards, payday loans and any other debts.

Now, take your after tax monthly income and subtract the total amount from your list of monthly expenses. Also subtract the monthly amount due for all of the items on your debt list. The remainder is the monthly amount you have left to reduce your debts.

Ok, now that you have a clear understanding of your debt and income, it is time to make a plan and work your strategy. After subtracting your monthly expenses from your income, if you are left with a negative number or a very small number, you should first investigate ways to reduce your expenditures. Perhaps you can do without your cable subscription or you could make your own lunch and save a few bucks the “brown bag” way. Any amount of expense that can be avoided and applied toward your debt will shorten the time remaining until you are debt free. Now take that available cash and apply it to your debt with the highest balance and the highest interest rate. Continue to pay that debt down until it is eliminated and then start on your next debt until you eliminate them all.

Show Some Discipline
Of course, while you are trying to pay down the debt you have accumulated, you need to remain disciplined and not add any new purchases to your total. As you eliminate debts, you should have more cash available to pay on debt. Continue to evaluate your expenses and see if there are any additional cutbacks you could make. Track your progress and watch your debt diminish. You may want to investigate reducing the cost of your debt by moving a high interest credit card balance to a new card with zero percent interest for an introductory period or you may want to consolidate your debt through a home equity loan. Maintain your resolve and dedicate as much of your income as possible each month and you will reduce your debt more quickly than you thought possible.

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