There are millions of people each year who find themselves beneath a pile of debt. For whatever the reasons — medical problems, a firing or layoff, or just run-of-the-mill bad money management — when that debt starts to grow, it can leave you feeling helpless to do anything about it.
If you are constantly missing payments, receiving calls and notices from collection agencies or even just finding that you don’t have any extra money once you’ve made all of your payments, then it’s time to buckle down and fix your financial problems. Sure it takes some time and effort, but once you start hacking away at your debt, you’ll feel less stressed and have a better outlook on life. Here are a few things you can do to reduce your debt effectively.
Pay Largest Balances First
While you want to avoid missing payments on any bill you have, you will want to focus on the largest debts you have first. This will help you get back to a manageable overall monthly expenditure on your debt.
Here’s an example: if you have debts of $10,000, $5,000 and $1,000 and you put $200 toward each debt every month, it will take you nearly five years to pay all of them off. If, on the other hand, you paid the minimum payment on the smaller two debts — say, $150 per month — and carried that extra $100 over to the largest debt, you can pay off all of the debts in nearly half the time.
This method allows you to keep the same total amount you spend on debt each month — $600 — but it takes care of the largest debt at a faster rate. Even if the largest debt has the smallest interest rate, you are still attacking that large chunk quickly, reducing your total overall payments ($600 per month for two-and-a-half years as opposed to $600 per month for five years).
Another option is that you do the exact opposite of the above method. With the “snowball” method, you pay the minimum amount on all of your loans, but you attack your debt from the bottom up, focuses on taking out your smallest debts first and then moving on to the next smallest.
You will not save the overall money that you will with the first method, but you will see results more quickly, which makes this more of a “seeing light at the end of the tunnel” option. Because you will actually see different debts disappearing from your report, you will get the sense that you are accomplishing something and you will feel better than if you have to wait a long time to see actual results. If you’re impatient to get debt off of your ledger, this may be the option for you.
Try a Balance Transfer
Even if you have a lot of debt, if you are making at least your minimum monthly payments and haven’t missed many, or even any, of those payments, your credit score may still be good enough to qualify for a credit card that allows no-interest balance transfers.
You can transfer whichever balances you can to the new card and then be able to make payment for a year or even longer without interest. This lets you attack the principal balance, allowing you to pay off the debt more quickly.
The key to this method is using the new credit card only for the balance transfer. It won’t do you any good to keep adding to your debt: once your make the transfer, put the card away until you’ve paid it off.
Control Your Spending
One of the easiest — and yet, one of the most difficult — ways to can find more money to pay off your debt is to control your spending. It seems like a no-brainer, but many people find it hard to change their spending habits.
Sit down and write out all of the things you spend money on. Make three columns: things you have to pay for, things you’d like to spend money on and, finally, all of the small expenses you make every week (coffee, snacks, etc.). This will give you a good idea of things you can cut back or out completely to free up extra cash so you can pay down your debts. Then it’s just a matter of willpower to get it done.
If you need help with credit card debt, there are several options available.
Francesca Hayward works as a financial consultant and likes helping others with their money. She also enjoys sharing her insights and experiences by posting on various family and money blogs.