How to Reduce Debt

Living in today's environment is very challenging. It seems like every day we are offered more choices on what to buy, where to go on vacation, how big of a house to buy, etc. If you do not pay attention it is easy to get in over your head. Please understand that it does not have to be this way. There are simple, proven ways to reduce debt and even ways to get rid of debt.

Difficulty: Moderately Challenging

Instructions

Things You'll Need:

• Envelopes
• Pen and Paper

1. Stop Incurring More Debt - If you want to reduce debt, you must stop incurring more debt. If you cannot do this it will be extremely difficult to get rid of the debt that you have. Redefine necessity! You need food, clothing, shelter, and transportation. Everything else is negotiable!

2. Use Cash - When you receive your paycheck go down to the bank and withdraw the money that you have budgeted for food, gas, clothing, and entertainment. Put the allocated amount in 4 separate envelopes and spend as needed. Once the cash from an envelope is gone, you are done spending on that category. Spending cash hurts! We develop an attachment to our cash and are less likely to blow it on something stupid versus handing over a piece of plastic.

3. Try and transfer high interest rate cards to a lower rate card - This is actually easier than most people think. Simply call up the credit card company and tell them that you received an offer from a competing company to transfer your balance at a lower rate. Ask them to meet or beat the offer or you will take your business elsewhere. Be ready to actually do it if your card company is trying to be strict.

4. Pay off small balances first - Credit card consolidation companies will tell you to pay off your higher interest cards first. They realize that once you become disappointed as your slow progress you are more likely to start charging again. List out your debts from smallest to largest. Attack the smallest on with a vengeance. Once that debt is eliminated, move on to the second smallest debt paying the minimum amount PLUS the amount you were paying of the first debt. In this way you will really begin to reduce debt faster.

5. Stop Using the ATM - Besides getting cash out for food, clothing, gas, and entertainment (as detailed in step 2 above) stop using the ATM. ATMs only lead to overspending. Stick to the plan and spend only what you have to spend to get by. It is not forever, just until you get rid of your debt.

Tips & Warnings

• Be flexible - It will take time to reduce debt
• Consider bankruptcy only after trying everything else. If you do declare bankruptcy, realize that your financial life will be miserable for more than 10 years. It is not the easy way out! Following the steps outlined above is the easy way to reduce debt.

Resources

• Total Money Makeover Workbook
• Envelope System
• Financial Peace University
• FPU Software - Tremendous Value

[mil102]

on 10/18/2008 Everybody including myself is always saying "if I could just get out of debt". You gave the answer in the first step. Stop adding more bills if you want to reduce your debt. Good advice! 5*s
http://www.milsopportunity4successbusinessideas.blogspot.com/