How to Reduce Your Debt Strategically and Legally

Reducing your debt can give you greater peace of mind.

Seeking new information and knowledge about debt reduction is an activity that can pay for itself many times over. A couple of hours spent surfing the Internet or talking to a financial advisor might reveal methods of debt reduction that can save you thousands of dollars. Make a comprehensive plan that incorporates all of the methods that are appropriate to your situation, and you will soon see your debt begin to shrink.

Instructions

1. Consult with your banker about personal loans and mortgages. If you took out either of these during a period of high interest rates, you may be able to negotiate a refinancing that will substantially reduce the interest that you are paying. You can then reduce your payments or continue to make the same payments with a higher percentage going to the principal rather than the interest.

2. Pay off high interest loans with money acquired through lower interest loans. If you have high credit card debts and own your own home, you may be able to take out a bank loan at low interest using your home as collateral. If you can pay off debts that are charging 18 percent with money from a loan that is charging 6%, you've immediately cut two thirds off of your interest burden.

3. Consider declaring bankruptcy if your debts are debilitating. Although this is an extreme step, and it can negatively affect your credit rating, it is perfectly legal and can get you out of a tough spot. However, it's critical that you change your financial habits, or you stand a good chance of finding yourself in the same situation a few years down the road.

4. Reduce your expenses and dedicate the money you save to paying off your debts. Cutting down on extravagances, selling a second car and canceling a foreign vacation are all ways to free up a substantial amount of money that can then be used to propel you toward financial solvency.

Tips & Warnings

• Be responsible for every dollar you spend.

• Ask yourself why you are spending and what you are spending, and who you are spending it for.

• If possible, use debt managers and debt management systems to correct your debt.

• Avoid people or agencies who offer to solve all of your financial problems for you, especially if they are asking for payment up front. Always get references from any financial professional who will be dealing with your personal finances.

References

• Wells Fargo; Reduce Your Debt; Assess Your Situation
• Money Problems; Dealing With Debt; Six Ways to Reduce Debt