Anytime is a good time to put your financial house in order. Or at least in better shape. And in these tough economic times, doing so is more important than ever.
Here are some practical ideas to help you reduce debt, and in so doing, reduce the stress that comes with carrying that debt.
Step 1: Setup a Family Budget
- It’s usually the little expenses that add up. While you may already have accounted for things like your mortgage and car payment in your monthly budget, you may be spending hundreds on items and services you aren’t aware of. From ATM fees, to a few extra dollars at the grocery store, to takeout lunches at work, these $2-$10 costs can really add up.
- For a full month, write down everything you purchase, and ask your family to do the same. At the end of the month, review your expenses and figure out what can be eliminated or reduced. Chances are, you’ll find the cash you need for steps 4 and 5.
Step 2: Check the Facts
- Get a free copy of your credit score at AnnualCreditReport.com. Be sure to verify the accuracy of all information, and follow-up with any creditors that have recorded incorrect information.
- View the payment and balance history of each account. Can you find areas where you could reduce debt by making increased payments, or eliminate debts faster?
Step 3: Contact Creditors & Make a Plan
- For any accounts with high interest rates or those that you could pay off faster on a different payment schedule, contact the creditors to request an interest rate adjustment. Be sure to have your credit report & score in hand when you make the call, and ask to speak with a supervisor if you are unable to reach an agreement.
Step 4: Pocket the Change
- Small change can really add up over time. To start building your savings account and reducing credit card debt, put aside a little extra cash everywhere you can. Pay in cash and save the change and small bills in a jar at home, and have a small amount from each paycheck automatically deposited into your savings account. Over time, you’ll see your bills shrinking and your savings growing, while you won’t feel the pinch of the extra payments.
Step 5: Increase Your Payments
- Now that you have a clear understanding of your interest rates and remaining balances, you’ve reduced rates wherever possible, and you’ve found some pockets of additional cash from reducing expenses and adding to your savings, it’s time to jumpstart your debt reduction.
- Starting with the highest interest credit card, try doubling your payment each month, or at least adding $20-$50 to each payment. By increasing your payment, you’ll pay off the debt much faster (possibly a few years faster) than if you continued making minimum payments. Once the card is paid off, you can move those higher payments to the card with the next highest interest, and so on until all debt is paid off.