Get Organized And Set Goals
The first step on the journey to debt reduction is sitting down and making a list of all your credit cards and loans.
You can make this list using a pen and paper, but a spreadsheet works extremely well and is easy to update.
All you need to do is create a column with each of these headings:
- The name of your card or loan
- Total outstanding balance
- The monthly installment amount if it’s a loan and the monthly minimum payment due if it’s a credit card
- The monthly statement date and the due date for each account
Once you have this information written down, you’ll want to work out the total amount of debt you have to pay down and decide on a date you would like to be debt-free.
After that, you’ll need an effective repayment plan to make sure you attain your goal.
Choose Your Strategy
As anyone who’s ever paid down their debts will tell you, reducing all your balance to zero is easier said than done.
That’s why choosing an effective strategy is so essential.
They are two debt reduction strategies that have become industry standards: the snowball method and the avalanche method.
Let’s take a look at them in more detail.
The snowball method requires you to pay down your smallest debt first.
Using your spreadsheet, you can sort your dates according to increasing balance and work through them from smallest to biggest.
The advantage of this method is that it allows you to pay down your smallest debts relatively quickly, therefore motivating you to pay down your bigger credit balances.
This strategy tackles debt repayment from the opposite side. You’ll first pay down the debt with the highest interest rate and then move down the list.
Once you’ve paid down your highest APR debt, you can use the money you save on repayments to tackle the debt with the next highest interest rate.
As you pay down your debt in order of decreasing APR, you’ll have more and more money available.
Think About Consolidation
The interest rate and other fees that make up your APR can add up to thousands of dollars to the cost of a loan or credit card repayments.
Debt consolidation is an effective strategy that can help you reduce the cost of your debt.
By combining all of your debts into one and securing a lower interest rate than you’re currently paying, you’ll be able to reduce your debt quicker. This will save you money and drop your credit card balances significantly.
These actions could even help boost your credit score.
Start Paying More Than The Minimums
Unlike installment loans that have fixed monthly payments, credit cards allow you to pay a minimum amount each month.
While this may seem affordable, it also means that you can have a credit card for years and never pay down the outstanding balance.
Paying more than the minimum monthly installment on a credit card will ensure that you’re paying down your balance and not simply the interest you owe.
You don’t need to add hundreds of dollars to your credit card payment each month.
Even a $50 or $75 additional payment can help ease the burden of paying down your balance over time.
Spending less than you earn is the first step toward building wealth.
By paying down your debt, you’ll be able to use the money you currently put towards credit payments straight into your savings and investments.
Knowing how much you owe, setting a repayment deadline, and considering options like consolidation and ex