Top 10 Ways to Reduce Your Debt

Debt can be a useful tool if it's taken on wisely. If, however, your debt repayment begins to take too large a bite our of your income or you suffer a significant income loss, your debts and associated interest on that debt can quickly start you on a downward financial spiral from which recovery may be difficult, if not impossible.
Here are some suggestions for reducing your debt and reversing your financial fortunes. Taking these 10 steps can, if implemented with determination, can put you back in control of your money again.

Develop a comprehensive picture of all your debts, loans, credit cards and the details about each. 

How many are secured.? How many unsecured? What are the highest and lowest balances. Which are more flexible? You need a complete picture of your debt before you talk to your creditors about interest rates and payment schedules.

Put away the credit cards. Stop carrying them. 

Place them in a safe-deposit box or some place where they are hard to get at. You don't want to cut them up or cancel the account as this can have a negative impact on your credit. Keep them for emergencies, but be careful to define what is an actual emergency. If you do use a credit card, determine to pay off any emergency expenditure within 30 to 60 days. Make no more impulse purchases

Call your bank or any lenders with which you have loans. Discuss whether they might lower your interest rate. 

You might be surprised at their willingness to work with you. If you are in financial trouble, it may well be in their best interest to ease your payments rather than risk your defaulting on your loans. The bank may also have special programs to prevent mortgage default for which you may be eligible.

Calculate your debt-to-income ratio. 

Decide which debts, like mortgages and student loans, are with you for the long haul and which ones can be reduced dramatically with a determined effort. Decide how much you need to reduce non-essential debt like car notes, credit cards and store credit in order to return you to a positive cash flow position.

Begin keeping financial records. 

A simple check register type accounting program is easy to use and allows you to periodically pull up a statement of your financial position to help you evaluate your progress toward being free of indebtedness. At first the reports may look discouraging, but as you make progress, you will look forward to charting your success at reducing your debt.

Plan the steps you will take to get out of debt based on the information you have collected. 

Calculate payment schedules, time-lines and dates for clearing various elements of your debt picture. Plan a “Freedom Day” celebration for the date when you will pay down the last non-essential debt and you once again have a positive cash flow.

Check your W-4 form at work. 

If you've been consistently getting a large refund check from the IRS every year, you're taking too much out in withholding. Reducing your withholding can give you more cash with which to knock down your indebtedness. The savings in interest alone can more than make up for the lack of the big annual tax check. Right now knocking off those credit card payments is more important.

Stop paying minimum payments on credit cards. 

The larger your payments the faster your debt drops. Minimum payments often merely pay the interest without reducing the principle.

Stop going out to eat. 

Quit smoking. You can't afford it. Reduce your cable and cell phone packages to a more manageable level. Turn off the lights. Turn down the thermostat in winter and dress warmer. Turn up the thermostat in summer and put up a couple of ceiling fans. The more you reduce your cost of living, the faster you can pay down your debt.

Borrow from yourself. 

If you've got a 402K or retirement account, insurance policy or wealthy relative who will give you a loan at little or no interest, pay off your credit cards now. Secured loans against money you already have or from relatives is much easier to pay off than credit cards. Only file bankruptcy as a last resort. Working your way out of debt through discipline and planning looks good to lenders if you find you need to buy a car or replace the roof after you've restored your finances to a manageable condition.

The discipline required to dig yourself out of a debt hole can be exhausting. Once you’ve figured out your plan, think up some inexpensive rewards for yourself for meeting your time-lines and goals. If you've got something to look forward to, austerity isn't nearly as deadly dull.