Spring is in full bloom and we are heading to the end of the first half of the year! I hope you have learned some wonderful things about how to improve your financial picture along the way and picked up some fun and affordable plans for your summer activities!
Congratulations to you if you have managed to pay off your debt! Keep up the good work and continue to journey on the path to financial freedom. However, if you are one of many who are still struggling with debt, then relax, pay attention and don’t give up! As you know, it is really hard to rest comfortably when you have debts hanging over your head – leaving you with the inability to save, secure the best interest rates and avoid
all those collection calls. So we go month to month trying our best to make the minimum payment knowing that this will only prolong our frustration, as well as the amount, while at the same time lowering our credit score making it almost impossible to see the end of the tunnel.
So how do we fix it? What should be our strategy? What should our plan of action be that would make our lives less stressful? During the month of May, I will share some great strategies to reduce your debt. If you follow our guidelines and put these techniques into action, you will be on the right track to get rid of your debt and finally see the light at the end of the tunnel.
For most people, reducing debt can seem like an unrealistic goal because no matter how many times we pay the bill, the amount we owe never seems to change very much. This vicious cycle is driven by our own excessive spending habits and the credit company that has increased the rates on our loan as a result of our unfavorable payment history. So what is the solution? Do you need to go and hire someone to help you lower your debt? The answer is that you can probably follow the steps below all by yourself and greatly reduce or eliminate your debt in a relatively short period of time.
First: Review and evaluate your debt. I know that this may be a scary moment but you need to really see exactly what you owe and what the terms (interest rates, minimum payments and annual fees) are. I highly suggest that you obtain a copy of your credit report. The only way to get a truly free credit report is from www.annualcreditreport.com, so try there first. See what shows up on it, then pull all of your statements from your creditors. From both of these sources, list on a separate piece of paper who you owe, how much you owe and the terms. Make sure to include all credit cards, auto loans, medical bills and personal or signature loans. If you have a mortgage/s or student loans, it is good to include them in your tabulation but since they are generally long term loans at lower rates, they should probably not be in your immediate pay-off strategy.
Second: Now that you know what you owe and how much it cost, take a look at your budget to see what resources are available. Just take your after tax income and subtract all of your other monthly expenses. Be sure to be conservative and include items for entertainment. After subtracting all of your expenses, you should hopefully have some money left over to pay toward your debt. If not, then look back at the budget and work on a way to decrease your expenses. A lot of us find that we may be able to cut back on entertainment, dining out or utilizing a lower TV network package or phone plan. The key to remember is that the less we spend the more money that will be available to decrease the debt.
Third: OK, so now you truly know where you stand, so the next step is to implement strategies that make sense and work. My suggestion is to look at your creditors and make a strong effort to concentrate on paying off the one that has the highest interest rate and /or the highest balance. Why? Because that’s the one that’s costing you the most. As a general rule, it is not a good strategy to routinely make minimum payments on an outstanding loan. With that said, see if your budget will allow you to make more than the minimum payments on any of your loans and at the same time, make whatever substantial payments you can on the most costly loan. Continue this practice until the largest, highest-interest debt is paid off. Once you have eliminated it, take that same amount of payment you were making and place it on the next highest interest rate and highest balance loan. This is the quickest, most effective strategy to paying off your debt! But it only works if you prevent yourself from adding new charges to your card, so be sure to put those credit cards away in a place where they cannot be easily used.
Fourth: After a few months of implementing these changes, you now stand a better chance to renegotiate the terms of the debt with the creditors. So contact them and ask for the customer service department. Plead your case that you are taking meaningful steps to pay down your debt and that you would like for them to lower the interest rate or reduce the amount of the debt or both. Why would they do this? Because they now see that you are a lower risk and are likely to be eligible for a lower rate through another competitor. Therefore, if they want to keep you as a customer, they may be willing to provide you with better terms to keep you happy to keep your business.
Fifth: Be consistent in paying off the highest interest debt first and making more than the minimum payment. Make sure that all of your payments are made before the due date. The easiest way to do that is to set up an automated bill payment system via your online banking account. Following these steps will lead you to paying off your debt and enjoying a life of financial dignity. Congratulations to you for taking the first steps to financial freedom!
Stop in today at Mid-Illini Credit Union to learn about how we can help you as you pay down your debt.