Debt Reduction

Anyone who has worried about not being able to pay a bill on time, or who has spent sleepless nights worrying about their increasing credit card balance should invest their time and effort into implementing effective debt reduction strategies in their life. While it might sound like a complicated process, debt reduction can take a variety of forms, from a simple examination of your spending habits to debt counseling or consolidation for more severe cases of debt trouble. There is a debt reduction strategy out there for even the best money-savers.

Debt Reduction Signals

If you find that you run out of money long before your next pay check, or that you are living pay check to pay check, you might want to examine your spending habits. For a two-week period in a month where your spending habits are average (i.e. don’t pick December because of additional holiday spending), write down everything you purchase, along with the costs. At the end of two weeks, add it up to see where you stand—in the black or the red. It will be fairly obvious to you if your purchases total much more than what you bring in. And if that’s the case, you need to do some serious budgeting, working towards debt reduction through eliminating unnecessary spending and saving for emergencies.

‘B’ stands for budget, not bankruptcy

You don’t want to find yourself so deep in debt that the only way out is bankruptcy, which should be reserved for extreme cases of debt only. Even if your debt is minor, setting up a budget is always a good idea. Budgeting doesn’t just mean that you can’t go buy that snowboard or new stereo because it’s “not in the budget.” In fact, budgeting means the opposite. It is all about planning and sticking to goals that you have set for yourself so that you can, at some point, go on that vacation you’ve been dreaming about or buy yourself a condo in the heart of the city.

If you can do simple math, then setting up a budget will be fairly straightforward. Your goal should be debt reduction, something that can be accomplished through monitoring your expenses closely. Calculate your essential and superfluous costs separately to see how your spending habits are affecting your long term goals of reducing debt and saving for the future. For example, do you go out for lunch with co-workers every day? Let’s say that runs you about $10 each day, for 5 days/week. Over the course of one month, you have spent approximately $200 on lunches! There are probably many other ways you would rather spend your money.

Reduce high interest debt first

Are you saddled with a student loan and credit card debt? Trying to figure out which one to pay down the fastest? The key to effective debt reduction is in reducing your high interest debt first. In most cases, student loans are government secured debt with fairly low interest rates. Make the minimum payment each month on these, and then put every extra penny you have toward the 19% interest rate that is making your credit card company rich and you depressed and broke. Always make more than the minimum payment, when possible, as high interest debt will eat away at your income for years to come. If you can follow these simple debt reduction strategies, you will feel in control of your finances and be able to get on with your life—worry-free.