Easy Methods for Reducing Your Debt

The average American family carries over $8,000 in credit card debt alone. Add a car payment or two and a mortgage, and the debt becomes overwhelming. There are many organizations and companies out there to counsel you about how to reduce your debt. However, by learning a few quick and easy methods, and committing yourself to becoming debt-free, you can reduce your debt on your own.

Debt Reduction Method One: Prioritize Your Debt

Of course, most debts require you to make a minimum monthly payment on the debt. This would be your credit card bill, car payment or mortgage payment. Every debt that you have also has an interest rate attached to it.

There are two schools of thought on how you should determine which debt to pay down first. Some say that you should attack the debt with the lowest balance first. This is supposed to give the debtor a greater sense of accomplishment by being able to pay off individual debts more quickly.

Others say that you should chisel away at the one with the highest interest rate. Debts with the highest interest rates are the ones that end up costing you the most money in the long run. Therefore, reducing the high interest rate debts first will reduce your overall expenditure.

Debt Reduction Method Two: Consolidate Debt

Debt consolidation can be done in different ways. Of course, you can apply for a debt consolidation loan. This loan is intended to pay off all of your outstanding small debt: usually credit cards and perhaps car payments, depending on how much the loan is for. This is a good idea only if the offered interest rate is lower than all of your other debts’ interest rates.

You can also consolidate debt by utilizing your lowest interest credit card. Pay off higher bills with this card, or transfer balances in order to reduce the interest payments. Applying for a new credit card with a special introductory 0% interest rate on balance transfers is also a great idea. Transfer all of your higher interest cards to this 0% interest card.

Debt Reduction Method Three: Increase Income