Five No-Fail Debt Reduction Techniques

Debt ruins lives and destroys our ability to finance our futures. For those buried under a mountain of bills and interest payments, the key is to find ways to reduce debt. Lowering debt levels isn’t always easy but can be achieved provided you’re disciplined and apply these five proven debt reduction techniques.

Kill your credit card debt

Too many people use credit cards as an extension of their monthly paycheck and run up frighteningly large debts. Many compound this mistake by only paying back the minimum required sum, which just leads to interest being charged on interest.

Hammering your card debt requires a twofold approach. Firstly, agree on a plan for repaying the existing debt, working out how much you can afford to pay off each month. And, alongside that, you must reduce your credit card dependence. To minimize temptation, maintain no more than one card and ideally make no further credit card purchases until you’ve repaid your existing debt. Of course, at that point, it’s also crucial to remain disciplined in your credit card usage. They should only be used where essential and should be repaid in full each month.

Loan payments

The chances are that you have an auto loan or some other form of personal loan that you need to pay off. Most loans have fixed monthly payments and the key is not to miss any payments, so you don’t incur bank fees and damage your credit score. However, it’s worth asking your lender if there’s the ability to pay off the loan early through either stepping up your monthly payments or by making a lump sum payment. The general principle with loans is that the sooner they are paid off, the less costly they will prove.

Avoid unauthorized overdrafts

When people get into debt difficulties they often find their checking account going into the red. If this results in an unauthorized overdraft position, then this will prove very costly in terms of bank fees and interest payments. If you’re not able to lodge funds into the account, then you should ask your bank whether it’s possible to set up an agreed overdraft program. Agreed overdrafts have much lower interest rates and fees and are less damaging to your credit score.

House payments

Credit cards, overdrafts, and personal loans are all examples of unsecured borrowing. In contrast, mortgages are secured against your home. If you default on your mortgage payments, then you risk having your home repossessed as all too many Americans discovered during the sub-prime mortgage crisis. It’s essential to budget efficiently so that you allow enough spare funds each month to fund your mortgage payments. Arranging for your mortgage payment to come out on your pay day reduces the risk that you will spend the money that you have earmarked for your mortgage.

Budgeting, goal setting, and debt consolidation

Budgeting is at the heart of any prudent housekeeping and boils down to the fact that you must live within your means. The more costs you can shave from your lifestyle, the more you can reduce your debt. To ingrain the budgeting habit, you should set monthly goals and review them to ensure you stick to your plans. Finally, if your debt is a messy combination of loans, credit cards, and overdrafts, then it may be time to explore debt consolidation with your lender. Debt consolidation helps with lowering your debt by taking all your debt and transferring it onto a lower interest rate loan, with an agreed fixed repayment plan.