How to Reduce Your Debt in 5 Easy Steps

If you have incurred substantial personal debt, consider these options: budgeting, debt consolidation, credit counselling from a reputable organization and working with your creditors. You will need to choose a debt reduction method that will work best for you? The method you use will depend on your level of debt, how much spare money you have, your level of discipline, and how quickly you want to get out of debt.

1. REALISTIC BUDGETING

The first step towards taking control of your financial situation is to do a realistic assessment of your income and expenditure. Work out how much you earn (your total income) and write this figure down. Then total your expenses. This is how much you spend each month for rent, fuel, food, clothing, heating, water, electricity and other bills. The difference between your total income and your total expenses is the amount of money available to pay your creditors or lenders.

Decide if there are any monthly expenses that you can reduce or live without. Focus on lowering your expenses so that you can increase your income. You'll be amazed at how many things you can do without.

a) Debt Reduction Methods

Choose a debt reduction method that fits your situation and gives the maximum benefit. You could choose to focus on repaying debts that are most important to your credit rating or to maintaining your family's safety. Or you can start by paying off those debts with the highest interest rate thus reducing the total spent on interest charges and increasing the amount available to pay off debt.

Alternatively, you could focus on paying off bills with the lowest balances. Then the money used for those payments can go to pay off other debts.

If your credit payments (excluding mortgages) exceed 15-20% of your take home pay, you can work with creditors to set up monthly instalments that are more in line with your income.

b) Credit Cards

Transfer your credit card debts (balance) to a card offering an introductory 0% interest rate for balance transfers. Make sure you keep up the repayments and then just before your 0% introductory offer is up, apply for another 0% card, transfer the balance over before you starting paying interest ? and repeat. With a good credit record, you could do this for years, moving your debt from one card to another until it's paid off.

3. DEBT CONSOLIDATION

This is when you use a new loan to pay off multiple debts. Your monthly payment will be lower because repayment is spread out over a longer period of time. This will usually eliminate the hassle of having multiple creditors, multiple bills, and multiple payments to make. It's very important not to take out any additional loans until your consolidation loan has been repaid. Borrowing against your home is a cheap way to raise money, but it's risky. If you can't make the payments - or if your payments are late - you could lose your home.

However, you could replace expensive debts with a cheaper personal loan (unsecured loan). Before taking on new debts, you might want to check out your credit history.

4. CREDIT COUNSELING

Some people are not disciplined enough to create a workable budget and stick to it. If you can't work out a repayment plan with your creditors and you can't keep track of mounting bills, consider contacting a credit counselling organization or a financial advisor. In the UK you can use free debt counselling services such as the Consumer Credit Counselling, the National Debtline and the Citizens Advice Bureau. Similar services are available in the US.

5. CONTACTING YOUR CREDITORS

A creditor is a company or person to whom you owe money. Many people struggling financially ignore debts and fear contacting their creditors. This reaction will damage your credit record. Creditors or lenders may take action against you in an effort to get payment. If you're finding it hard to get your bills paid, be the one to contact creditors. They will be more willing to work with you. Work out arrangements that satisfy you both. Explain to each lender that you aim to repay each debt in full over time, but that they must accept reduced repayments for now. Decide how much you can pay them each month and set up a debt repayment plan.

Conclusion If you're serious about reducing your debt you should stop spending on your credit cards and stop taking out new loans. To increase your income, consider finding a second job or a lodger. Claim every state benefit that you qualify for and work on cutting down your expenses. Sell stuff that you don't need on eBay or at Car Boot fairs. Put enough money aside for emergencies, but use the bulk of your savings to pay off debt. Debts usually cost you far more in interest than you gain on your savings. Also, if you have a fairly good credit record, you should transfer your debts to cheaper lenders. Finally, shop around for better deals for services and products that you use.

Disclaimer: This article does not constitute financial advice. If you require such advice, you should seek appropriate professional guidance.

Copyright © 2005. Chileshe Mwape writes for Debt Consolidation Loans UK: http://www.best-debt-consolidation-loan.co.uk/ . Visit our site to consolidate debts and apply for a loan online.

This article may be reprinted as long as all the above links are active and clickable.

---

Debt is The Master of Souls

Wholeness requires separation. In order for you to experience yourself... Read More

Reduce Your Debt With These 5 Tips

It's never pleasant to realize that you're in financial hot... Read More

Selecting A Credit Counselor; Asking The Right Questions.

When you find yourself thinking about using a credit counseling... Read More

Reduce Your Debt

Do you want to reduce your debt? Having trouble paying... Read More

Dealing with Thingitis

Debt is quickly becoming an epidemic in America. However, through... Read More

Help for the Single Mother with Managing Credit and Debt

Today's consumers benefit drastically from the usefulness of credit. Credit... Read More

Use A Debt Checklist To Examine Where You Are

A Debt Checklist allows you to look at items and... Read More

How to Reduce Your Debt in 5 Easy Steps

If you have incurred substantial personal debt, consider these options:... Read More

How to Become Debt Free

In today's consumer society it is all too easy to... Read More

Establish Money Saving Goals For Added Success

Having something tangible to strive towards can work wonders for... Read More

How To Pay Credit Card Debt Off

If you are determined to pay credit card debt off... Read More

Is There A Way Out Of Your Debt Problems?

Do you have multiple debts? Do you have just one... Read More

How to Negotiate Debt Settlement

People over extend themselves financially as a result of a... Read More

Personal Debt Reduction Practices

Personal debt reduction practices, the steps people take to relieve... Read More

Debt Relief with this Simple Formula

Is there a way to get out of debt without... Read More

Credit Card Debt: How to Get Rid of It

This method is simple, but requires some discipline.First, you have... Read More

A History of Money and Banking Secrets That Banks Dont Want Published

A History of Money and TradeTo start with a history... Read More

Debt Handling Solutions

Sometimes debt can seem overwhelming. In those instances, or even... Read More

Debt Management Systems

What is a debt management system, and when do you... Read More

Budget the Luxuries First!

Strictly speaking, his advice was preceded by another Heinlein maxim... Read More

Bankruptcy Your Best Bet?

Filing bankruptcy is a common practice among the U.S. Over... Read More

Debt Validation: Do you have to pay ?

It happens all the time. Debt collectors try to collect... Read More

Help to Get Out of Debt

Debt Help is the stepping stone to debt elimination and... Read More

Personal Bankruptcy: Last Option To Legally Stop Bill Collectors

Do you have stacks of unpaid bills?Are you in debt?Are... Read More

Debt Collectors; And what you can do to Get Them Out of your Life

FTC opinion letter on validation Section 809(a) of the FDCPA,... Read More

Debt Getting You Down? - Make a List!

Debt is not much fun and when faced with it,... Read More

Debt Free Living - 5 Tips To Get Out Of Debt

A few times I wonder what sort of credit system... Read More

Debt Relief -- Why Most Programs Have A 75% Failure Rate

Debt consolidation, equity loans, credit counseling, debt management plans, even... Read More

Credit Counseling or Bankruptcy: Which is Best for You?

People often get to a place where they simply can't... Read More

Turning Bad Debts into Good Debts through Investing Fundamentals

If you've ever earned enough money to put some aside,... Read More

IVA Information

If you're thinking about an IVA, it is essential to... Read More

Debt Free and Carefree

Are you still clearing a mountain of debt amassed last... Read More

Debt: Dont Pay Your Minimum Balance

Almost all Americans carry credit card debt. Actually, over 40%... Read More