Have you ever dreamed about being out of debt? It would be a really good feeling, wouldn’t it? Just imagine waking up in the morning knowing that no creditor will be dunning you for payment, that you can use your credit cards without worrying about how you will make your payments or being afraid that you will run out of money before you run out of month.
If you have a lot of debt, say, $20,000 or more it’s unlikely that you will be able to pay it all off very quickly. However, you could use debt reduction to at least whittle down your debt to the point where you will no longer be afraid to answer the telephone.
Credit card debt reduction takes dedication
If you’re really serious about debt reduction you need to be prepared to do some hard work and be dedicated to the task. And be aware that there are no quick fixes despite the ads you might see on television or the Internet.
You need to really want it
How badly do you want to get out of debt? If you’re seriously committed to the idea of debt reduction, you should be willing to get a second job and work a few 80-hour weeks. Yes, that’s a lot of work. However, keep in mind that you got yourself into your fix. You need to take responsibility for this and do the hard work that’s necessary for debt reduction.
Assess your debts
The first, important step in debt reduction is to evaluate your debts. To do this you will need to get your free credit report from one of the three biggest credit bureaus (Experian, Equifax and TransUnion) or on the website Annual Credit Report. Then sit down and go over it carefully. This will show you exactly where you stand. While you’re doing this, be sure to also write down a list of all of your debts, their balances, interest rates and monthly minimum payments. Watch for danger signs such as missed payments, debts that have gone to collection and defaults. These are what damage your credit score the most and if you find any of these, you will need to get to work and try to fix them. Also, look for any errors in your report that could be damaging your credit score. If you find one, write a letter to the appropriate credit bureau disputing it.
The snowball method
The financial expert Dave Ramsey developed what he calls the snowball method for debt reduction. Here’s how it works. You now have a list of all of your debts. The next step is to organize it so that the debt with the smallest balance is at the top and the one with the largest balance is at the bottom. You then focus your attention on doing everything you can to pay off the debt with the smallest balance. This is where it would really help if you were to take on a second job. While that job may not pay much more than $10 an hour, this could mean nearly $600 a month after taxes that you could use to pay off that first debt. If that debt were for $1200, you’d have it paid off in just two months. If the minimum payment on that debt had been $30 a month, you would now have $630 a month available to start paying off the debt with the second lowest balance and so on. We’ve seen people that owed $20,000 and were able to pay it off in just 27 months using this method.
Negotiate with your creditors
While you’re working on paying off that first debt you should also be contacting your lenders to see if you could negotiate better terms. For example, you might be able to get the interest rate on your debts reduced or even your payments lowered. It’s possible that you could even be allowed to skip payments for a few months although this is not recommended as it just postpones the inevitable. Believe it or not, debts that have gone to collection or charged-off can be the easiest ones to negotiate. After all, the lender has already sort of given up on them and should be more willing to grant some concessions in return for a payment.
Move some of your debts if you have great to excellent credit
If you have a substantial amount of high-interest credit card debts, think about moving them to a credit card with a lower interest rate. Even better, you might be able to move all those credit card debts to a 0% interest balance transfer card. There are cards available that offer 18 months interest free. This would give you a year and a half to reduce your balance before you would be required to pay any interest at all. This form of debt reduction could actually lead to debt elimination – if you were to pay off your balance before the end of that 18-month introductory period.
Follow through on your debt reduction plan
The most important thing you can do in debt reduction is to follow through or as they used to say, keep on keeping on. If you use the snowball strategy for debt reduction, you should be able to go to your spreadsheet at the end of every month and see some real progress. This alone should keep you motivated so that you will stay on your plan and eventually get debt reduction turned into zero credit card debt.