Top 10 Tips for Reducing Your Debt

By Debbie Wilson
Learning & Life Columnist

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Debt is a way of life today. Everybody owes somebody something: money, service, or products. And while debt is not a problem as long as you can repay, millions of Americans have financial problems due to overspending, low income, student loans, or life circumstances such as unemployment or illness.

Reducing your debt starts with controlling spending, planning your debt away, and taking control of your life.

There are many ways to reduce or eliminate your debts. The strategy you choose will depend largely upon the amount of debt you have, your current and future income, and your personal goals. The following top-ten debt-reducing tips are an excellent way to take stock of your financial situation and provide remedies for planning and budgeting.

1. Determine Your Debt.

In order to determine your actual debt, you will need to write down all your monthly bills and expenses. Be honest! It is important to know exactly where you stand when it comes to debt repayment.

2. Make Debt Reduction Your #1 Priority.

The problem you have with debt is relative to your income and cost of living. If you are unable to do things you want because of surmounting debt, it may be time to develop a debt reduction plan. According to the Fair Department Collections Practice, 12-15% of income may be safely directed toward debt repayment.

3. Determine Income Sources.

Calculate your current and future income. You might consider ways to add additional income, which could help to reduce your debt. Some suggestions include having a garage sale, taking a part-time job, renting out a spare room, selling any unsecured assets, etc. You can also save your loose change. Just $5.00 a week will give you an extra $260 a year.

4. Develop a Budget.

A well thought-out budget will help you determine which bills are essential (rent, utilities, food, school loans, etc.) and which bills are avoidable (eating out, new clothes, credit card interest, etc.). Develop a budget that's realistic. Don't skimp on essentials, but don't give yourself a large allowance for non-essentials.

5. Eliminate Credit Card Debts.

Debt reduction starts where credit ends. That means no more charging. Put the credit cards away, or if necessary, cut them up and close your charge accounts. Start paying with cash and only keep one card for emergency purposes.

6. Reduce Interest.

For cards that currently have balances, concentrate on paying off the card with the highest interest first. Transfer high-interest balances to cards with lower interest rates. Additionally, try to pay more than the minimum payment. Only a small percentage of your minimum payment goes to pay down principle, which means you accrue interest charges faster than you pay off your card.

7. Contact Your Creditors.

If you are late with any payments, it is important for you to contact your creditors before they start contacting you. Many creditors are willing to give you an extension or negotiate a payment plan. Others will even reduce the required payment. Remember, collections are costly for any business, especially if they have to hire an outside collection agency, most creditors would prefer to come to an arrangement with you.

8. Seek Debt Counseling.

If you can't see a way to bring your debts and spending under control, professional help is available. Most legitimate debt-management counseling services are free or available for a minimal fee. They can help negotiate with creditors on your behalf and help you develop a realistic budget and spending plan.

9. Consider Bankruptcy as a Last Resort.

If your financial situation is so serious that your well-being is threatened, bankruptcy may be your only option. It should be undertaken with the help of a professional lawyer since it is listed on your credit report for 10 years and makes it difficult to get credit and secure loans.

10. Make the Decision to take Control Today.

Day after day you are bombarded by powerful and carefully chosen images that convince you that certain products will fulfill your needs. Take time to think about where your money is going and what you want out of life, and then make the decision to take control and start reducing your debt. You could soon be living your life the way you've always dreamed you would.

About the Author
Debbie Wilson operates a lakeside resort. Her previous experience includes profitability consulting for a national healthcare company. Debbie holds a B.A. in Business Management.

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