Beware of little expenses; a small leak will sink a great ship.
- Benjamin Franklin
Gaining control of the urge to splurge is the first part of digging your way out of debt. The second is taking advantage of ways to lower high-priced interest expenses, such as credit cards, that you may have accumulated over time.
These seven steps can help reduce your debt load:
- Start today. According to the Cambridge Consumer Credit Index, paying off debt in 2005 is the number one priority for 25 percent of Americans. However, LendingTree’s 2004 Smart Borrower Survey found 63 percent of those moderately to extremely concerned about their overall level of debt, do not have a financial plan to get rid of it. Procrastination does not pay the bills.
- Begin tracking your expenditures. By keeping a close eye on your purchases, you can determine which are needs versus which are wants. You can then formulate an action plan to reduce unnecessary expenditures and free up money to pay down debt.
- Set spending priorities. Make sure you spend to serve your life goals instead of just paying off expenses as they occur. Set aside money first for debt repayment and then budget for things such as saving for college or retirement, before spending on discretionary items.
- Leave your credit card at home. Surveys done by Consolidated Credit Counseling Services indicate consumers are likely to spend more using a credit card than when paying in cash. Also, closing credit card accounts can help you resist the desire to overspend by restricting your credit limit.
- Consider a debt consolidation loan. You can benefit from lower interest payments if you transfer the balances from high-interest credit cards to a lower-interest loan such as a home equity loan or home equity line of credit.
- Pay more than the minimum payment on your loans. A 2004 Cambridge Consumer Credit Index survey reveals that 42 percent of Americans are making either the minimum payment, or no payment at all, on their outstanding credit card debt. Using money sitting in a savings account (that’s most likely earning less than 2 percent interest) to pay off credit cards (that may carry an 18 percent interest rate) could be a far wiser investment.
- Try to negotiate a better deal with your lenders. If you’re feeling overwhelmed, don’t be afraid to ask your lenders if they are willing to lower their interest charges or reduce your required monthly payments to help you get back on track. This is often a better alternative for lenders than having you file for bankruptcy.