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By making a personal commitment and with some prior
planning, it is possible to reduce your debts on your
own:
1. Figure out your debts.
Gather up all of your financial documents and print out
your credit reports to see exactly where you stand. This
is the first step toward debt recovery, and one that
people are often afraid to take. Write down the
balances, interest rates, and monthly amount due for
each of your debts; your auto loans, personal loans,
payday loans, credit cards, and other debts. Also make
note of any annual fees on your credit cards. You don't
need to include your mortgage loan or student loans yet.
These loans have longer terms and lower interest rates,
so it is better to focus on paying off your other debts
to begin with. If you have an overwhelming amount of
debt, you may want to request a free professional debt
help consultation.
2. Examine your budget.
After you have gathered the information about your
debts, take a look at your monthly budget. Note your
monthly income after taxes and subtract your rent or
mortgage payment from this amount and other monthly
expenses, such as insurance, utilities, groceries, and
childcare. Once you have subtracted all of your
expenses, calculate how much you have left to pay off
your debts. If this amount is too small, look for ways
to reduce your spending. Consider turning off your cable
or carpool as ways to cut back for the time being. The
more you can pay towards your debts each month, the
sooner you will be debt free.
3. Make a plan!
Now that you know all about your financial situation,
it's time to create a plan for reducing your debt. For
example, subtract your minimum debt payments and monthly
expenses from your net monthly income. The remaining
amount should be used to first pay off the debts with
the highest interest rate and the highest balance.
Continue this cycle each month until the debt is paid
off, and then move on to the next highest rate and
balance account. This is the fastest way to reduce your
debts. During this time, you should not add any new
charges to your credit cards. Also, try to increase the
amount you pay toward the most expensive debt each
month.
4. Begin negotiations.
While you are starting to follow your repayment plan,
contact your creditors and lenders to see if you can get
better terms on your debts. You may be able to lower
your interest rates or negotiate a reduced settlement on
some debts simply by speaking directly with the customer
service department. It is especially easy to negotiate
the terms of debts that are charged off by the creditor
or in collections. Whenever possible move some of your
credit card debts to new accounts with lower interest
rates. Transferring a balance to a credit card with a 0%
introductory rate for 6-12 months can help you save
quite a bit on interest. Keep each of your credit card
balances below 35% of the credit limits to avoid
damaging your credit score. Check into consolidating
your debts by obtaining a personal loan or a home equity
loan as well.
5. Follow through.
Do your best to meet your payment goals each month. The
amount you pay toward your most expensive debt each
month can vary, but consistently pay as much as possible
toward your debts, and before you know it, you will be
debt free!
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