Finally Ready to Free Yourself from Debts? Choose the BEST Debt Reduction Strategies

The debt per capita of the US people is currently $103.41 k. Household debt is at a record high of 17.8 trillion. The average debt per household is $104215. Let’s find out about Debt Reduction Strategies.

In this scenario, we need better debt reduction strategies. However, most Americans have less or no track of the total dues. And it is impossible to clear debt without knowing how much you owe.

Step-by-step debt reduction strategies

A strategic approach is crucial here. Otherwise, people will accrue more debts that will eventually go out of their hands. Hence, I will discuss two simple but effective strategies to help you settle your debt.

These debt reduction strategies are the highest interest rate method and snowballing method.

The highest interest rate

This approach helps you tackle debts with the highest interest rate. Maybe your credit card or student loan debts. Both these attract the highest interest.

This plan aims to clear your debt as soon as possible. Once you clear your high-interest debts, you can easily manage the rest with an ongoing repayment streak.

Snowballing techniques

This method is entirely different. It targets the smallest debt at first. Firstly, get rid of the minimum debts as soon as possible.

Or you can keep paying the minimum dues on all of the debts. Meanwhile your extra funds will go towards the smallest debts at first.

When the small debts are clear, accumulate funds to pay off the next most minor due.

We call these the snowballing techniques. It is pretty different from the other methods.

However, comparison shows that the other method is better. The snowballing technique may lead you to pay more. You attract higher fines and charges as you keep your more significant dues pending.

Next step: make your debt reduction strategies

There are many online worksheets for debt reduction. You can scan the internet to search for the one that’s best for you. Firstly, create photocopies of all your pending bills and interest charged on them.

If you want to save more while paying debts, choose the high-interest rate method.

However, the snowball technique will help you close the dues quickly. Decide your move and take action.

Next step: organizing monthly bills

You must know how much you owe. You should also have a clear idea of your payback dates. Use the same data to create your bill calendar.

Hence, you can write all the information in a single place. It will help to tackle the debt better.

How to determine how much debt you owe?

There are many ways to say how much you owe. But the easiest of the lot is checking free credit reports from Experian. All credit bureaus list your pending debts to them. So, you will find all possible details there. That includes:

• Unpaid lenders
• Amounts due with each lender
• Top lenders
• Patterns of unpaid dues

Top 5 Debt Reduction Strategies

Start with calculating how much you owe. After that, you can tackle your debt better. You can also understand which debts are more serious compared to others. If you’ve enrolled in Debt forgiveness programs, list those records as well.

You may have to pay taxes on the forgiven amounts (if it’s above $10,000).

Once you are done with the step, choose one of the following debt reduction strategies:

1. Reduce your spending

Firstly, double-check your monthly expense plan. Find out things that can be adjusted. For example, closely observe your last 3 months’ credit card and bank statements.

Hence, you can understand where you spend most of your money. If you can cut back on any expense, do that promptly. Even $25 per month can make a significant difference in the long run.

2. Avoid taking in new debt

It’s already challenging to repay what you have taken. So don’t continue adding new debts every month. If needed, you can do away with your credit card for now. Or you can make a rule.

Determine that you will use your credit card for the expenses you can pay off yourself. Here I mean the full payment and not the down payment of something.

Many people also choose a cash-based approach. When you spend money, you have more awareness of what you spend and where you pay. Hence you can save the majority for the rainy day.

Also, indulge yourself in small challenges like avoiding online food ordering or online shopping for a month. In conclusion, find out the strategies which work best for you.

Your family might also help you to clear your debts. Sit with them and discuss where you can cut back on. But don’t try bootstrapping by taking loans from family members to clear pending dues.

3. Increasing the monthly payments

Imagine your total monthly payment is $5000 (threshold payment). So, you have to pay at least 10000 to reduce your dues quickly.

I know it is not as easy as it seems. Some people do not have the provision to increase their monthly payments. But it will be helpful for you if you can pay at least something more than the minimum amount due.

Firstly, some banks charge fines, even if you pay the minimum due. So, it is better to spend at least on something extra.

One of the other ways of making an easy monthly payment is setting up automatic payments. When your check arrives, the money will be automatically deducted. Hence you won’t have any chance to spend it.

You can automatically organize an electronic fund deduction from your account towards the source-due account. Or you may withdraw the amount by default to any debt requirement account.

4. Consider paying through the highest interest rate policy

Focus on the loans that charge you the highest interest. I am not talking about the most significant loans in terms of the amount due. Instead focus on the loans which charge maximum interest percentage. For example, a mortgage loan might be your most considerable debt in the US. However, it may be cheap as far as interest rates are concerned.

What should you start with

You will start with your credit card. Credit cards charge one of the highest interest rates in the US. So, the beginning of your debt reduction strategy is clearing credit card dues. As your remaining balance shrinks, the total interest charged on you also reduces. If you don’t have the money to repay, check out the best Debt settlement companies.

5. Clear the small single balances

This strategy says that you must focus on the smallest debt first. However, it is difficult to accompany the same with the highest interest rate policy. But I always suggest paying off the small debts. I mean the small single debts. After that, you can start a larger debt clearance.

Beware, the strategy might be tricky.

The strategy is risky for people who have high-interest debt. Don’t follow this policy if the interest charged is more than the small debt amount. Otherwise, clearing the smallest single debts at a go is always the best option.

Strategies to reduce interest rate

Is your debt charging more than 25% interest? It is impractical and illogical to pay so much. So, what are the options to reduce the interest rate now?

Some people will tell you to switch from a high-interest to a low-interest credit card. But that does not make much of a difference.

You can ask your lender if you have a mortgage. You may consider refinancing options also.

Here, what matters most is your previous repayment history. The lenders will reduce the interest rate if you have an excellent history.

Take consolidation loans

Debt consultation in the US is quite popular. You can use this loan account to track all due loans under the same roof. Usually, the interest rates can also go down with this plan. Here, you create a joint debt account. After that, you start paying one debt after the other.  

The typical constellation loans in the US are home equity loans and credit lines. There are personal loans as well. The interest rates and lower for all of these accounts. But there’s a catch about home equity loans. If you consider this a consolidation loan, you must keep up with payments on a mandatory basis. Otherwise, you may lose your house also.

Choose the right path to debt consolidation.

There are several ways of debt consolidation in the US. Henceforth, try and remove this stressor from your life today.

Start with making a list of your dew payments. Also, calculate the interest rates for the upcoming 1 to 2 years. Then, review the budget and your spending habits. Credit counseling services can help streamline your spending habits. Try to clear more than the minimum debt payments. You can first consider paying off the accounts that charge the highest interest. Or apply for a consultation loan and pay quickly.

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