If you have finally decided to reduce your debt, take a just a moment to congratulate yourself. You deserve it! Sadly, though, many people today find themselves in a difficult situation. They have taken advantage of no interest or low interest offers from card companies only to find they now have excessively high interest rates after they are late in making a payment, or after an introductory period expires.
Similarly, far too many homeowners have given in to the temptation of treating their homes like an ATM, withdrawing cash against a home equity line of credit to pay for luxuries like travel and vacations. It is time for this nation to stop going in to and start looking for ways to reduce debt.
Recognize Your Situation
As crazy as it may sound, many individuals are hesitant to add up all their and face the amount they owe. But you must do this if you are going to reduce your debt. Get out all your credit card bills and a notebook or spreadsheet on the computer, and start adding them up.
For each debt, make a note of the balance and the interest rate. Be sure to include any sums you have borrowed from friends and family members as you were plunging yourself into debt. Don't bother listing the minimum monthly payment; you're never going to pay that again.
Next, find the with the lowest balance and higher interest rate. If the balance is under $500, pay that off right away. Even if it is not the with the highest interest rate, paying one creditor off completely, down to a zero balance, will give you a valuable sense of accomplishment and confidence you will need as you reduce your even further.
Establish Priorities
Identify which of your remaining debts has the highest interest rate. Those are the debts that you must pay off next. You must dedicate yourself to reducing your debt. Every little windfall, every tax refund and holiday bonus, must go toward reduction. Likewise, the debts that have a low interest rate can be paid off last. Debts like low-rate home mortgages and personal loans fall into this category.
Stop Using Credit Cards
It may seem obvious, but it is so important that it is worth saying, and repeating: STOP going into debt. While you are concentrating on reduction, do not continue to accumulate new debt. Don’t take cash advances on your home equity line of credit. Don't take cash advances on your credit cards. Don't charge consumer merchandise on your department store cards. And above all, don't use a gas card to pay for gas……you will use all the gas purchased and still be paying for it months later!
Do not fall into the unsuspecting trap of thinking you will be coming out ahead by using a credit card to gain airline miles or other rewards either. The reward is rarely worth the high interest you will pay on the credit card balance.
