Debt Reduction - I need it desperately
What is debt reduction?
Debt reduction is the process in which the creditors allow his debtors to reduce their total debt amount. The creditors agree for debt reduction to get back their money faster. There are several ways of reducing debt. The method of reducing debt is also known as debt management.When should I opt for debt reduction?
You should opt for debt reduction when:- You are getting frequent creditor calls.
- You have lost track of your pending debts.
- Your credit card debt to income is showing negative.
- You are spending sleepless nights in the agony of huge debt burden.
- You are signing checks that are being bounced.
- You are using too many credit cards.
- You are repeatedly denied of credit approval by the lenders.
- You are extracting cash advance on your credit card to pay other bills.
- You are hiding credit card statements from your family members.
- You have quit your job and are unable to handle your debts.
Am I eligible for debt reduction?
The creditors agree to do debt reduction when they find that debt negotiation will be in the best of their interest and deny debt reduction with you, if you are a bankrupt. They feel that in bankruptcy cases they will get nothing more than zero dollars.Can I do debt reduction alone?
Yes, you can always do debt reduction by yourself. You can yourself devise better strategies than others. Even if you seek help from a particular company, you need to be self disciplined and sincere enough to reduce your debt burden.Credit card debt is the most prominent problem in today’s world. These debts are bad debts. If you do not avoid these debts, you can end up becoming a bankrupt. Credit card companies charge incredible interest penalties form you. So, first concentrate on those debts. Plan some credit card debt reduction technique and implement them effectively.
What are the different ways to debt reduction?
There are various ways to reduce your debts. Debt settlement, debt consolidation, and the self repayment plan can help you to reduce your debt burden.- Debt settlement: By this process, the debt settlement company reduces or eliminates your outstanding debt amount by 40% - 60% of the principal amount. Debt settlement is also known as debt arbitration or debt negotiation.
- Debt consolidation: The debt consolidation process not only merges all your debts into a single debt but also helps to reduce the interest amount.
- Self repayment plan: “Self help is the best help.” Assessing your own debts, framing an effective debt repayment plan and executing it successfully you can reduce your debt burden. If required you may consult a professional.
Which debt reduction plan is best for me?
It all depends on you to choose the best way of debt reduction. Your view towards money determines your choice of the best debt reduction plan. There are two types of debt reduction plan:- Arrange all your debts, listing them from highest balance to lowest balance.
- Maintain a fund to pay these debts every month.
- Pay all your debts but pay the minimum amount. Clear the debts of maximum interest with the money that is left.
- After paying off all your debts with minimum amount, pay off the debt with the highest interest. Keep repeating the process. You will find that the payment made towards the debt of highest interest, is paid off to get “snowballed” into the next-highest-interest-rate debt.
- List all your debts in an ascending order, based on the balance amount. Arrange debts, from the debts of highest balance to the debts of lowest balance.
- Keep a fund aside, to utilize it to pay these debts every month.
- Make your regular debt payment from the fund set aside. Use that fund to pay the debt with lowest interest balance.
- After you have paid the debt with the lowest balance, repeat the process. In due course you will find that you have paid off the debt with lowest interest completely.
How is the process of debt reduction?
You can reduce your debts in 3 simple steps:
To reduce debt burden, first admit that you are having debt trouble. You should understand that if you ignore such things, you will fell into more trouble. How can you judge that you are in debt trouble? If you refer to the different situation when you should opt for debt reduction; as discussed earlier, you can assess your situation.
Self control and self discipline can help you to curtail spending and, ultimately, reduce debt. Make a proper budget; include your total monthly expense in that. Then make a list of items, on which you will spend more. Sort out the necessary items amongst them. Assess the items that are unnecessary. See if you can cut back on the unnecessary spending. Paying for items like specialty coffee, frequent shopping; visiting restaurants everyday; involves at least $50 every week. It counts to $200 per month. In a year it is $2,600. Now say, had you saved this money how much had you saved? Eliminating the unnecessary items from your list will help you to gain control on your finance.
With the passage of time, credit card usage has become so important, that to think of a life without credit card is impossible. Apparently, the entire process to withdraw fast cash from credit card is very simple. But, very few of us can actually realize the after affects. The high interest rate that the companies charge literally becomes a burden in the long run.
You are purchasing something, before you can pay for it. So, your payment is delayed. The companies allow your delay till you are paying a monthly fee. For making late payments you just need to pay more than the actual selling price. i.e. the interest rate. More you are late; more is your interest rate. By the time you are ready to pay off your original selling price, you will find that your total payable amount has increased to almost four times the original amount. As a result, if the amount is too big, you will prefer paying only the interest rate and continue being in debt. You may also clear off your payments if it is affordable. But when you cannot, you are trapped in the vicious debt cycle.
A credit card debt of $10,000 with an interest rate of 18%, will take you more that 25 years to pay off completely. This shows that for 25 years you are paying nearly $45,000 for the debt of $10,000. Actually, you are paying nearly 4.5 times the actual cost. Now just think how much extra you are paying for using credit cards!
At present Credit card debt comprise of the maximum debt amount for a debtor. So limiting credit card usage to reduce credit card debt is the biggest challenge toady. It is basically of no real help from any aspect.
A credit card debt of $10,000 with an interest rate of 18%, will take you more that 25 years to pay off completely. This shows that for 25 years you are paying nearly $45,000 for the debt of $10,000. Actually, you are paying nearly 4.5 times the actual cost. Now just think how much extra you are paying for using credit cards!
At present Credit card debt comprise of the maximum debt amount for a debtor. So limiting credit card usage to reduce credit card debt is the biggest challenge toady. It is basically of no real help from any aspect.
What is credit card debt reduction?
Whenever you review your pending debts, you will find that majority of your debts are the credit card debts. So, whenever you think of debt reduction, first you should consider credit card debt reduction. Credit card debt reduction helps you in lowering the interest of your credit card. But, not all are eligible for credit card debt reduction.
There are companies, who help you in this process. You just need to call them and ask them to negotiate with your creditors and reduce or eliminate your credit card interest. The debt reduction specialist fixes your monthly payment, based on the following factors:
- Whom you owe.
- Your latest financial status.
- The state in which you live.
How can I pay my credit card debts?
- Review your total number of credit card debts: Calculate the total number of credit cards you possess. List them according to the names of the credit cards, how much you owe, the credit card limit, interest rate, and the contact number of each card.
- Make a repayment plan: Plan, how you will pay off your credit card debts. You may adopt any of the ways to get out of debt (the plan of highest interest snowball method or lowest interest snowball method) to repay your debts. Choose the method that suits you best. The best way to organize your repayment plan is by clearing the credit card debts that charge highest interest, first. So, pay more for the cards that involve high interest rate, as more you delay in paying them, more you will pay.
- Analyze the interest rate: Check out how much interest each credit card is demanding. Sort the credit card from highest interest rate to lowest interest rate.
- Lower your interest rate and no fee 0% APR: Some companies help you to reduce credit card debts. Contact every company and check out if they would give a lower interest rate. Surely check out if they provide you with a no fee 0% APR" transfer. Do not forget to see if you can get a "no payment" grace period. This means no payment for 1 year.
- Do not restrict your search to credit card companies. Search for a lender who can give you a better deal.
- Certainly opt for a credit card that that will give you a "no fee 0% APR" transfer on the existing credit card. If your existing card company refuses then apply for a new one.
- If the rep is not cooperative, speak to the supervisor.
- Shift the credit card balance: By transferring the credit card balance from highest balance to the lowest balance, you can save some money. The high interest credit cards charge huge money. If you can move the balances to a lowest interest card, your credit card interest becomes low, and you are paying less. This is the quickest way to lower your credit card interest and pay less.
- Clear off the highest interest card: First take up the credit card of highest interest, pay the minimum amount for all the cards, and use the balance to clear the highest interest card. Soon, you will find, your highest balance credit card debt has vanished.
When a credit card company offers a "no payment" grace periods, then don't pay anything for that card, rather clear off the highest interest card with that money. But many card companies have hidden policies. They charge interest for the entire period. So, keep a tack when your first payment becomes due. - Snowball your credit card debts: Pay the next highest interest credit card in the same way.
- Keep the process rolling till all your debts disappear: Now keep paying the credit card debts one by one till all your debts are cleared off.
What are the common debt reduction mistakes?
- Always handle one debt at a time: Take up one single debt. Think only about that debt. Aim to clear it off as fast as possible. You will see, this is the quickest way to clear your debts easily.
- Take up one single process of reducing your debt: You may come across several ways of becoming debt free in quicker time. All of them might be correct approaches to get out of debt. Do not get confused. Choose the process that suits you best.
- Never feel frustrated about your situation: Sometimes debtors become so much depressed about their state that they loose hope. They feel that they will never be able to overcome their debt burden. As a result you may enter into more trouble. Do not become disheartened. Join some debt community or a debt forum. You will find there are many people like you. So cheer up, gain confidence and design a suitable plan to become debt free step by step.
- Do not frame an impractical debt reduction plan: Adopt an effective debt reduction plan. It will help you to get rid of debt successfully. A unrealistic plan will never be of any help to you. Following such a plan will never make you debt free.
- Do not overspend while you are doing debt reduction: While you are already in debt, and trying to reduce your debt burden, do not make any big purchase. It will increase your debt burden. In fact your debt reduction plan would also be futile. Wait till you become debt free, and then buy the thing of your choice.
- Never cancel a credit card if it has a balance: Always clear your credit card balance before closing the account. This will help you to maintain good terms with the company. You can easily seek help from the company in future (if required).
- Do not be careless in managing your emergency fund: When you are maintaining an emergency fund for some other purpose never use it pay off your pending debts. Supposing you maintain an emergency fund for medical purpose and end up using it to clear off you debts you can be in trouble. What if, suddenly your spouse fell ill? How will you handle the situation? You might end up in taking a new debt.
- Do not allow the credit card companies to operate your savings account: Even if the credit card company is honest and trustworthy never allow them to extract money from your account. Use online billing system to transact with them. Paying in check would also be a good option.
