The thought of taking years on end to pay off your debt sounds daunting. However, with proper planning, you can avoid shouldering substantial debts and make the process of repayment faster and easier. Here are some essential steps you can take to reduce or eliminate your debt.
image credit: Unsplash
1.Budgeting
No matter the amount of your debt that needs to be paid, budgeting can help you reduce your debt significantly. Budgeting includes analyzing your monthly income and expenditures, redirecting your funds to debt repayment, saving money, etc. By taking all these factors into consideration, you can easily develop a realistic and efficient plan for paying off your debt.
One highly recommended budgeting method by debt consultants is the fifty-thirty-twenty method. Here you redirect 50 percent of your income towards needs, 30 percent of it towards wants, and the remaining 20 percent towards saving or debt repayment. This method is especially helpful for those who want to be debt-free while on a low income. You can adjust your budget accordingly to maximize savings and monthly repayments.
2. Develop a Repayment Plan
A realistic plan for paying off your debt will assist you with reaching your debt pay-off goals in a shorter period of time. Once you’ve done the budgeting and taken into account the debt you owe, make a plan for paying it off that allows you room for saving, repayments, and other expenditures. There are a few efficient means of repayment.
For instance, the debt avalanche method and the snowball method. In the debt avalanche method, you pay off one debt at a time, starting with the one that has the highest annual percentage rate. This method will help you save money on interest since you’re taking care of the largest portions before moving on to debts with lower interest. There are many debt settlement services you can use to negotiate your balance but always talk to a debt consultant before doing so. Then there is the snowball method where you focus on paying the smaller interest debts first and then move on to the bigger ones.
So, search your options and see which method will work best for you.
3. Smart Debt Solutions
There are many new and old debt solutions one can implement to reduce their debt and become debt-free. Debt consolidation is one of these methods where you combine all your existing debts into one. This way you don’t need to make multiple monthly installments. Debt consolidation helps lower your interest, thereby saving your money over time and reducing your debt. There are also many services that reduce your credit card debt by renegotiating your balance. However, this option does come with certain risks, therefore, it is better to consult an advisor before you make any decisions.
Another way to reduce your debt is by transferring it using a 0 percent intro credit card. Once you do so, all payments made on the credit card go towards repaying your principal amount without interest for the first few months. There is a service charge that you do need to pay. If you receive tax refunds, use them to pay off large sums of your debt so you can decrease minimum monthly payments.
4. Ask for Lower Interest
Another way to reduce your debt is by asking for lower interest rates. You do not need to feel hesitant about renegotiating your interest rates. If you talk to your creditors or lenders, it is possible that they might consider lowering your interest rate so long as you have a good credit score and payment history.
If you feel hesitant about making the approach, talk to a debt consultant who will let you know about your options based on your account’s standing. Once you’re sure that you’ll receive a reduction, go ahead and do so and you might just qualify for lower interest. Lower interest will help you save significant amounts of money, thereby reducing the remaining debt.
5. Increase your Monthly Payments
Once you know how much funds are available for repayment, you can gradually increase the repayment amount. In most situations, you need to pay 2 percent of the outstanding debt plus interest each month. You can easily increase this amount with the right planning. If you want to get debt-free faster, paying minimum monthly repayments won’t do. Rather, paying off a large chunk of your debt through increased monthly installments will save you money on interest, therefore reducing your debt amount.
image credit: Unsplash
No one wishes to prolong their debt repayment unless it has certain profits. There are multiple things one can do, as we’ve listed above, to reduce their debt. Following the helpful steps, we’ve mentioned will make it easier for you to pay off your debt by either reducing it or completely eliminating it easily.
Featured image credit: Pexels
