Reducing Your Debt
Getting rid of debt is really not that complex, you just need to pay it off. That being said, there are a lot of tricks that will help you get it paid down quicker.
Let’s take a look at some of the most effective ways to get rid of your debt.
Don’t Just Pay The Minimum
So many people only pay the minimum on their credit cards and wonder why they never seem to get anywhere. Most of your money is just going to the interest part of the payment when you stick to the minimum.
Every extra dollar that you pay on your credit card will pay huge dividends. Pay an extra 10 dollars off and that is money that comes off the balance and money that you will no longer be paying interest on.
Let’s say you have a credit card with a balance of 1000 dollars at 18% interest. Pay the minimum payment of $25 and you will pay that amount off in 62 payments and pay almost $539 in interest. Increase your payment by $10 to $35 a month and you will pay off the debt in 38 months and pay almost $316 in interest.
In this example, paying just $10 more a month will allow you to pay off the debt 24 months earlier and will save you $223 in interest.
Use Introductory Interest Deals
If you are carrying debt but otherwise have good credit, you can take advantage of low introductory interest rate credit card deals. You know the ones, they offer a super low rate or even no interest for a set period.
You might be afraid to take on new credit but if you do it right, it can save you a lot of money.
Take the offer and transfer the balance from your highest interest credit card or cards. Take the old credit cards and cut them up but do not close them unless they have annual fees. Closing them could make your credit score drop because it lowers your available credit, so just stop using them.
Now, you can continue paying down your debt, but now it is interest free for a period of time. If you transferred 2000 dollars for a period of one year interest fee, you could easily save 400 dollars or more.
If you can save money on interest, debt consolidation might be the thing for you.
The average interest rate for credit cards is currently at or around17%. With good credit, you should be able to get a personal loan to consolidate this debt for well below 10% interest. That represents a significant reduction in interest paid.
When you lower your interest rate that much, you will be able to apply all of the money that would have gone to the credit card company to your balance. If you have 10,000 of debt, that could be almost $1000 in interest that you are not paying every year. You can see where that could allow you to pay your debt down much faster.
As a side benefit, those credit cards would now go down to zero balance. This will reduce your credit utilization and increase your credit score. Once again, do not close those cards, simply cut them up and stop using them.
Get A Part Time Job
Extra work means more money to pay down that debt. Even working just five extra hours a week can make a big difference on those credit card balances.
Take driving for example. Uber says that their drivers make about $25 an hour on average. Five hours of driving a week equals $125 which is an extra 500 dollars a month. That is $6000 in debt that you can pay off every year, just by working a few additional hours a week.
If driving people around the city is not for you, there are many other part time jobs that might strike your fancy. This is a fantastic time to be looking for part time work because demand for employees is very high. Because employees are so hard to find, starting wages keep going up.
Keep in mind that you only have to keep this part time job as long as you have debt. That motivation of being able to stop the extra work when you are debt free might even help keep you on the debt reduction road.
Cut Unnecessary Expenses
Drastic times call for drastic measures. Perhaps it would serve you well to cut down on all extra expenses, even for just a month.
Try this. Take one month and cut down all extra spending. Let’s take a look at how much you could save and put down on credit cards.
Take your lunch to work. Save $10 a day or $200 in a month.
Put your satellite on hold. Save $100 a month.
Entertain at home instead of going out. Save $100 a week or $400 a month.
Those are just three simple things and already you have $700 that you can now put towards a debt. You do not have to do this every month but doing it once or twice a year could help you really cut down that debt.
As a side benefit, a no spend month, serves as a spending reset. You will find that you are much less likely to spend money frivolously the other months of the year.
Eliminate New Debt Creation
It goes without saying that if you are trying to cut down your debt, you should not add more. This is often easier said than done though because of the power of credit cards. It is oh so easy to just put that lunch on a charge card because it is so convenient.
You need to stop new debt creation by cutting up those cards. Can’t bear to do it, at least stop carrying them with you .
In addition, erase the stored credit cards that you have on your computer, your phone and shopping websites like Amazon. Make it so that you have to manually enter a credit card to use it. It will give you at least a little time to come to your senses.