Keys to reducing debt

When you want to be in a good state financially, you will want to focus on reducing your debt. If you do not get rid of your debt, you will never be able to stabilize your financial position.

So, how can you reduce debt?
First, stop using your credit cards. Paying off debt is easier once you stop using your cards. If you incur more debt, it is near impossible to get rid of the debt you have. So, while you can't start over, you can stop getting in debt and start getting out.

Next, prioritize your debt. You will want to make a list of the debts you have, and what their interest rates are. Then, pay off your highest interest debts first. Each time you have a debt paid off, take the amount you were paying on that debt and apply it to the next debt on the list. This will help you to not only get out of debt, but get out of debt much faster.

The next thing to consider is how much you pay on a debt each month. Do not just pay the minimum balance, pay as much as you can each month, and chip away at it until it is gone. Even if it is number ten on your priority list, pay at least five percent above the minimum. It will significantly cut down how long it takes you to pay off your debt, and will significantly decrease how much you pay in interest over time.

Paying just a little more than the minimum can make a big difference. For example, assume you have a balance of $5,000 at an interest rate of 15% and you make the minimum monthly payments of 2.5% of the balance or $25, whichever is greater. It would take you 183 months to pay off the debt and cost you $4,395 in interest. However, if you were to pay an extra $150 each month, you would pay only $845 in interest over 27 months.

Next, to reduce your debt, be as careful as you can about consolidating. Consolidating is a smart move if you can be wise about it. However, some people get themselves in more trouble by consolidating. So, transfer large balances on high interest cards, to lower-rate cards. Just make sure that you can pay off the card before your rate increases, as many times you get a good introductory rate, but then it goes higher.

Cancel your old cards so you won't be tempted to use them again. The most you need is two. And leave them at home unless you really need them.

Take the time to set up a payment schedule and time table, and really stick to it. If you have a goal to work toward, chances are you will reduce or get out of debt faster, and do a better job. So, write it out and refer to it regularly.

No matter what you do, the best way to reduce debt is to continue to pay it, and stop getting in it. Save for the things you want, and do not let plastic become the answer or solution to your financial problems. Instead, have it for emergencies, but make sure those are real emergencies. You will want to have credit cards so you will have credit, but never rely on them, and never let yourself get pulled into the rewards programs etc. They may be fun incentives, but they can mean trouble if you are not disciplined.