5 Ways to Reduce Debt in 6 months
It can be easy to get into debt. An extra purchase put on a credit card here or there, a car loan, a big purchase you intended to pay off but somehow found yourself making minimum payments on. Life sometimes gets in the way, and even with your best intentions, expenses can seem to come out of nowhere and using credit may be your only option.
Whatever your reasons, here are our 5 tips for how to make progress in getting back on track.
Understand how much you owe
Perhaps you have a personal loan, a couple of credit cards, and a car loan. The repayments might not look like too much when you look at each, but when you add up the combined total it can be quite confronting. Instead of paying a little bit extra off each loan/credit card at the same time, it might be more beneficial to choose one and divert the majority of your extra repayments to that.
Some people find it easier to pick the smallest loan amount and pay that off first, others will go for the loan with the highest interest rate. Whatever option you choose, once one loan is paid off you will be able to contribute more to the next loan.
This is quite a simplistic example, and in reality, you may incur extra charges for paying out loans early, but it serves to illustrate the concept of how paying off loans one at a time allows you to snowball your repayment amounts in a way you can afford.
Negotiate For a Lower Interest Rate
Speaking to your creditors and asking if they can offer you a lower interest rate creditors can be extremely helpful in managing your debt. If you have a good payment history and credit rating your creditor may be able to offer you some wiggle room. If this isn’t an option, refinancing your loans to ones with lower interest rates may be your next course of action.
If your debt is on the higher end it might pay to look into a debt consolidation loan, where many different loans are combined into one loan with a lower interest rate.
Increase your income
If you are very, very determined to pay off that debt as soon as possible, there are many ways to increase your income which will give you extra money to pay off your debt more quickly. It can be taking on extra work part-time work on weekends or evenings or requesting overtime in your current position.
You can think outside the box a little and think of what belongings you own that you don’t really need and could sell, or whether a hobby that you have could actually generate an income for you. The more you put effort into making debt elimination a high priority, the faster you can pay your debt off for good.
Reduce your expenses
While cutting spending money may be reasonable, one of the ways to reduce expenses that you may not have considered is to look at those ongoing monthly or weekly expenses. Do you have subscriptions you could drop? Could you find car insurance for a few dollars less a month? Can you take advantage of some of our money saving techniques to reduce living expenses while still enjoying the great lifestyle you want?
Reduce debt then create savings
Once you have your debt back under control start working towards an emergency stash of cash. Act as if you still have debt, but instead of paying off a loan you transfer that same amount to a savings account. If you have some savings put away you will be better able to cope when unexpected bills pop up.
Once you have this buffer cash you can get back to enjoying having a higher level of disposable income for travel, study, that home renovation job you’ve been putting off, or even planning your wedding! Of course life isn’t perfect, and sometimes even with the best intentions things don’t go to plan. All you can do is make the best decisions with the options you have, and work to get back on track as soon as possible.