5 Ways to Lower Your Amount of Debt

Posted: June 14, 2012 in Finances
Tags: , , , , , ,

I think being in debt is something all of us common folk can relate to. I’ve heard so many stories from friends and family who are stuck in debt and feel like they can’t get out. I, myself, am still not 100% debt free but I have managed to get rid of about 85% of my debt over the years. Depending on where you are in your life, until you become totally financially free (or rich), you will probably always have a certain amount of debt. The debt doesn’t have to be huge and you don’t have to carry it on forever. Below are five small things you can do to start lowering your debt:

1.    Don’t Apply for New Credit Cards:

I believe two is the appropriate number of major credit cards an individual should have. If you include department store credit lines, then five should be the maximum. Having more than that is just digging yourself into a financial hole. If you have maxed out most of your credit cards, you have no business applying for new ones. Just because the banks and stores offer them to you doesn’t mean you have to take them. In fact, if you are maxed out and you know you’re a chronic charger you should just cut up those cards that are maxed out. Some people pay down their balance a little, but go right back out and charge more stuff to the card. This does nothing but continue the cycle of debt and you will never finish paying it off. Cutting up the card will take away your ability to just whip out the card at any time and alleviate all urges to charge purchases.

2.    Focus on One Debt at a Time:

If you have multiple outstanding loans and balances, try focusing on one account at a time. You should still make your regular, timely payments on the others but if you can make more frequent payments or can pay more than the minimum, you should do that on one card at a time. This is the strategy I used to help me lower my debt. You can start with the largest or tackle the smallest balance. I started with my smallest balances because I knew I could pay them down faster. This also lessens the feeling of being overwhelmed. Instead of stressing yourself out trying to figure out how you will pay all your balances off at one time, you’re focused on one debt at a time. Once you start paying each balance off one by one, you will start to feel a sense of accomplishment because you have made a dent in the mountain of debt.

3.    Ask for Lower Interest Rates:

This is for your credit cards and/or credit lines you use regularly. Although you definitely shouldn’t be buying anything on credit too often, if you do have a credit line that you use on a regular basis you should do this. Call your creditors, explain to them that you have been a cardholder for “X” amount of time and you make your payments on time. Then ask them to lower the interest rate. Do this every six months. If you have been making your payments in a timely manner, they should do this for you. If they don’t do it, you can attempt to call their bluff and threaten to close your account. Most times they will give in and lower the interest rate. Sometimes it doesn’t work so be prepared for the backfire if they won’t do it J. This will lower your payments making it easier for you to pay the debt down or off faster.

4.    Only Shop with Credit if Necessary:

This is a rule I started using after I bought my first bedroom set. I was paying that bad boy off way longer than I should have been. It seems like you can buy just about anything on credit these days and the promise is always “low, easy monthly payments”. Once again, just because they offer you the credit doesn’t mean you have to take it. My new rule is that I don’t charge anything on my credit cards or take out any loans that I can’t pay off in six months or less. The exception to this rule is only if it is a large purchase (i.e. a car or house). This goes right along with my rule of not buying things I can’t afford. If you can’t pay it off in six months or less, chances are you can’t afford it and therefore shouldn’t be charging it in the first place.

5.    Pay More than the Minimum:

I find it hilarious when people are carrying a balance of thousands of dollars on an account but only make the minimum payment each month of forty bucks. You will never pay that debt off if you do that! If you have a high interest rate, then you definitely won’t! People fail to realize you can’t get ahead of the debt doing that because the interest you’re paying is almost as high as the minimum amount you’re paying. What I did was put any extra money I received towards paying down that credit card. If I got a bonus at work or I did a little overtime or something, it would go straight to the credit card. Tax season was my favorite. Most people look forward to tax season so they can go shopping some more. That’s okay. My suggestion is if you don’t want to contribute your entire tax return to paying off your debt, then do half and half. Set aside half of it to pay down/off a credit card and half to go shopping. I did that a few times as well. Just remember that if you pay more than the minimum on a loan to make the bank aware that you are paying towards your “principle”. Whenever people get a little extra money it burns a hole in their pocket and they can’t wait to spend it. Only you can decide what your priorities are.

“Debt, n.  An ingenious substitute for the chain and whip of the slavedriver.”  ~Ambrose Bierce

“Today, there are three kinds of people:  the have’s, the have-not’s, and the have-not-paid-for-what-they-have’s.”  ~Earl Wilson

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Comments
  1. I also find it funny that people pay the minimum—especially if they can pay more. I think if they did the math to see how much they are actually spending on an item versus how much they pay with interest they would be shocked. My guess is that most people do the math.

    For us, we try to put as much on our credit cards as we can but with one stipulation—we are paying it all off in its entirety as soon as the bill comes. We bought a couch which cost us a pretty penny—$3500—but it was nice to just simply click the payment away and have it over and done with.

    • Just Jewel says:

      I agree, people probably don’t do the math. You make a good point about paying off your credit card balance in full when the bill comes. For those who can afford to do it, that’s a great way to build your credit as well.

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