Four Long-Term Strategies for Reducing Debt
Thursday, June 12, 2014, 1:00 AM | Leave Comment
Source: Alan Cleaver
Debt reduction can be a long and painful process. The stress and anxiety of avoiding creditors and deciding which bills you can afford to pay each month can make a debt-free life seem nearly impossible. However, for those who are struggling under the burden of debt, there are solutions. Whether you are currently working to pay off debts, or are simply trying to maintain a debt-free lifestyle, use these four strategies to reduce debt long-term.
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Budget Your Debt
Planning your debt into your regular budget is key to managing your debts long-term. Sit down and plan out a monthly budget for your finances. Be sure to account for regular expenses (like car payments, insurance, and grocery bills) as well as any projected expenses that you anticipate (e.g. birthdays, planned outings, etc.). Then set aside a percentage or dollar amount of your paycheck to go toward debt payments.
Ideally, you should aim to pay more than just the minimum required payment. That way you will pay off your debt faster, and reduce the interest accumulation over time. If you consciously set aside a portion of your budget to go towards your debts each month, you can regularly chip away at your debt so that it doesn’t grow to an unmanageable sum.
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Refinance Debts
Refinancing means changing the terms of your loan to reduce interest rates or the payment schedule. This allows you to pay back your debts more quickly or at reduced cost, lightening the financial strain on your budget. When struggling with debt, many homeowners choose to refinance their home, to reduce their monthly interest rates and their subsequent mortgage payments.
Credit counseling firms, like A.C. Waring & Associates Inc. in Edmonton, can counsel you about various debt management solutions. Consider speaking with a professional to help you determine whether refinancing is a good solution for you.
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Don’t Rely on Credit
One of the worst things you can do while trying to manage your debt is add to it. Make a point of leaving your credit card at home, and rely instead on cash or debit. If possible, avoid using your credit card except in the case of emergencies—at least until your debt is at a more manageable level.
Using cash for all your regular expenses (e.g. grocery shopping, gas runs, etc.) is a simple way to keep track of the money you are spending. Set aside the budgeted amount of money you plan to spend that month, and then use that cash for all your expenses. When the stack runs out, there goes your spending money for that month.
If you hold yourself to this habit, you can save significantly in the long-run. It is much easier to track your expenditures when you have the physical sum of money in your hands. Instead of swiping a card, as you hand the money to the cashier at each purchase, you will be more aware of the amount you are spending. And this will reduce your expenditures over time.
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Invest in Savings
Investing in your savings account is a smart way to manage your debt and finances over time. Add to your savings each month, if possible. Just as you set aside a portion of your budget for debt payments, account for an additional savings sum to build up for a rainy day. Even small contributions can make a significant dent in your overall savings if you conscientiously add to it each month.
Talk to your bank about setting up an automatic deposit into your savings. This is a simple way to add to your savings account without hassle. And the best part is, because the deduction from your paycheck is automatic, you don’t have to make budget decisions each month about how much to take out. Instead, when you go into your checking account, you will see how much you have to work with post-deduction—making saving a much more painless process.
Debt reduction is often a long, hard road. But through conscientious spending, careful discipline, and consistent effort, you can get out of debt and stay out of debt long-term. Apply these strategies to maintain a healthy budget, and seek professional debt counseling for more debt solutions.
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