Sunday, 12 September 2010

The possible debt reduction strategies

Debt plague our money and cash flow, unnecessary draining our hard earn money to pay bank's charges and interest. It is vital to reduce our debt immediately because the bigger the amount that we owe bank, the bigger the charges are.

Recently, one of my friend Ms Dorothy wrote an article that she share with me on her technical method of an effective ways to reduce your debt. I am keen to share them with my reader, hope you able to make the best of these tips like I do.

Everyone ought to strive for getting out of debt. Many hard working individuals get into debt and from time to time debts can become a burden. It can also result in significant financial hardship. There are numbers or ways to reduce your debt, but as everyone’s circumstances are different so there is no such thing as the best debt reduction strategy.

6 ways to reduce your debt.

  1. Pay higher than minimum payments: If possible, you should always try to pay more than the minimum payment, or it could take you forever to pay off your debt. When you pay more than the minimum, it really does add up to pay your outstanding balance off a lot faster.
  2. Debt avalanche: By debt avalanche method, you pay off the loan with the highest interest rate, which will result in quicker debt reduction. Once the debt is paid off, move to the next highest rate and continue down the list, until your debts are totally eliminated.
  3. Snow ball method: In this method, reorder your debts from smallest to largest. Then make minimum payment on all the debts except the smallest one. When the smallest debt is paid off, you roll the amount you were paying for the smallest debt into the payment on the next smallest.
  4. Increase your earnings: Earn more money to pay extra on your bills. This will make you to pay off your debts faster and thus reduce your debts.
  5. Credit card balance transfer: By transferring your outstanding balance from the higher interest rate credit card to low interest rate credit card will speed up the debt reduction process.
  6. Develop a budget: Try to develop a budget that will record all your incomes and expenses. Once your budget is developed, you will be able to make rational and well informed decisions. Then you can plan about how to pay the credit card companies every month. In this way, you can reduce your debts quickly.

Once you begin your debt reduction strategy, you will start to see success. The good habits that you will develop should be kept in check so that you don’t again slip back into debt.

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