Top Tips For Reducing Debt
Debt has been a big problem for many people in recent years. Before the credit crisis, many people were too liberal with their borrowing and banks were too liberal with their lending, and now many of us are strapped with the burden of debt. We must now take austere measures and reduce our debts; this guide takes a look at the best debt management tips to help you reduce your debt and live a more prosperous financial future.
Assess Your Position
Before you make any efforts to reduce your debt, it is important to take stock of your finances. Absolutely everything should be included; your salary, your expenditures, your lending and your assets.
Prioritize Your Debts
Some debts are more costly than others, and it is these costly debts that need to be addressed first. For each debt you have, check the amount of debt, and the amount of interest that applies to your repayments. Credit counselling services can help you understand how to prioritize your debts.
Credit Debt Management
The best position to be in is to have at most, a few credit cards and one personal loan. Ideally you don't want any personal loans, but having one is okay as long as you can handle it and do not commit to further loans.
If you have a number of credit cards with high balances, the best way to reduce them is to pay the minimum payment on all cards, and pay as much as you can on the card with the highest interest rate. If you only pay the minimum payment each month your balance will take an extremely long time to clear.
Use Financial Planning Software and Applications
There are plenty of financial planning tools available with banks and independent software developers these days, and with them you can manage you incomings and outgoings from one convenient and powerful location.
Think About Your Purchases
There are many reasons why we buy things, but some reasons are better than others. Limit your purchases to things you really need, and always think carefully about why you want to purchase something in the first place. Every time you open your wallet or purse, think to yourself 'do I really need it?' There are many ways to avoid big purchases if you find ways to innovate.
Commit to Specific Monthly Payments
Once you analyse your financial position, choose a specific amount of money each month to commit to debt reduction, and stick to it. The best way to so this is to set up an Auto Pay/Direct Debit close to your payday.
Separate Your Accounts
It is always good practice to use different bank accounts for different purposes, for example, one account for savings and one for day-to-day purchases. Try to make savings accounts as difficult to access as possible. This mainly applies once you have paid off your debts to ensure that you do not slip back into debt.
Limit Your Grocery Purchases
How many times do you find yourself buying food and beverages when out and about? All of this can add up to a surprising amount, but you can avoid this by taking your own food and drink with you out of the house and limiting your grocery shop to only once a week.
Debt consolidation is one possible measure you can take if your debts are serious. The benefit of this is that it your debts are smaller and easier to manage, but the drawback is that your total debts will take longer to pay off. Your credit rating may also be affected.
Think About Your Bills
From fitness club memberships to TV and entertainment packages, you should take a look at everything you pay for on a regular basis and reduce them or get rid of them altogether.
Don't Rely on Credit
Your general purchases should be made using money you actually have, and not credit. Relying on a credit card to see you through until the next pay day costs a significant amount of extra money in the long run. As you manage your debt, you should try to use credit cards as little as possible, and ideally never.
Managing debt can be a difficult task, there are a lot of organisations available to you which will give impartial advice and help you tackle the challenge of becoming debt free.
This article was written by Joseph, he helps people with debt management advice.