Debt Reduction Tips


Our current economy has caused many consumers to worry about their debt management future and start to consider what their debt management options may be, before they find themselves in a credit or debt crisis. This is sound pre-emptive debt management, and may be just what you will need to get you through these difficult economic times.

Pre-emptive debt reduction is simply anticipating a worst case scenario and being prepared for it if the worst should happen. These are steps you can take that will help to ensure that you can continue to maintain your credit in good standing even if the economy continues to decline by becoming more aware of how much and where your money is going.

The first thing you need to do is to gather all of your credit account statements for the past year, all of them including department store and gas station accounts and separate them into two categories of bank issued credit cards such as Visa, Master Card etc. and store issued accounts.

Once you have done this go through each individual account and arrange them in the order of their interest rate beginning with the highest interest rate and write down; what the rate is, when payments are due, what your credit limit is against your current balance, what your current minimum payment amount is.

Now making another separate list go through each statement going line by line to see exactly what you are charging on your credit cards and list each one by category as either essential or non-essential items i.e. gas being essential whereas a DVD would fall under non-essential. This may take you some time to complete, but is essential to successfully complete this debt reduction plan.

When you have successfully completed your lists total your monthly debts owed and write down the two separate totals of essential and non essential amounts.
Next make a list of your fixed monthly expenses such as rent or mortgage, time share etc. payments (be sure to include taxes, insurance, association, maintenance fees etc.) electric, gas, water, cable, telephone, food, medication, health insurance, car payments, license, tag and insurance, services such as pool and lawn service, car and mechanical services including tires and scheduled maintenance, drycleaners, babysitting, childcare, summer camps, tutoring, sporting or music lessons, health club memberships etc. be sure to look at your other lists and include all items that you pay for on a regular basis. All expenses must be categorized into essential or non essential and added up, each with a yearly total and then divided by 12 for a monthly approximate amount.

Once this is completed add up all your essential expenses and subtract this from your net income the balance is your discretionary funds. Compare your discretionary funds against your non essential total to see if you are living within your means in general your discretionary spending should never exceed 15% of your net income.

Now that you know where you stand as far as spending is concerned you need to go through your fixed monthly spending and see where you can make reductions such as cutting your own lawn, checking out different insurance rates for a better price, cheaper dry-cleaning, car pooling, and clipping coupons and so on. Once you have pared down your fixed expenses total up your savings, you will be surprised how much it can add up to in a year. Now do the same thing with your non-essential spending, but do not be too austere or create a budget that you won’t be able to stick to, it’s important to be realistic, but make the reductions on unnecessary items or activities, then total up that amount. Then combine the two amounts for your total budget reduction amount. What ever that figure amounts to apply 75% to your credit card debt starting with the highest interest rate and balance on top of your minimum amount due, and apply the remaining 25% to your savings account. When you have paid off the first account move on to the next highest credit card account and so on, until you have paid off all your accounts.

Always make sure you make your payments are on time to avoid costly late fees or increased interest rates, which under some circumstances can be raised after just one late payment, and pay $10.00 more than the minimum amount due, as the extra $10.00 will help to reduce the principal amount.

Contact your credit card issuers and try to negotiate a better interest rate, you have to be firm in the asking, explain that you are trying to keep your accounts current and ask them to work with you on this.

If you have an account with a low interest rate you may want to consolidate your credit card accounts to the low interest card, but be sure to read the fine print and negotiate a satisfactory rate before the introductory low rate offer is over, or transfer balances to a lower interest fixed rate.

If you follow these steps you will be in a position to manage your debts no matter what economic woes may come our way.

National Association of Certified Credit Counselors ISO 9001:2000 Certified on Quality Management System and BSI