There are many benefits to dealing away with debt within a short period, the most important being less stress and more money to spend on leisure, groceries, and home improvement.
1. Create a Budget
It is a good idea to create a budget to find out where your hard-earned money is going. The first thing to do is to list your combined income, including wages and salaries, bonuses, commissions, rent, and other sources of additional income you may have. Then make a list of your ongoing expenses such as mortgage payments or rent, groceries, cleaning detergents and cosmetics, daycare, clothing, and utilities (gas, phone, internet, water, etc.). Compare your expenses and income to find out if you spend more than you can afford.
2. Cut Back on Some of Your Expenses
Now that you have a budget, it is time to discuss different ways to cut on some expenses and use the money to repay any outstanding balances. If you spend too much on dining, for example, think of preparing homemade meals for your family. There are other ways to save on monthly or ongoing expenses, and one is to save money on transportation. You can do this in different ways – sell your vehicle, use public transportation (e.g. subway, bus, train), car pool to work, etc. In addition, you can save on debt in at least several ways by consolidating student or consumer loans, refinancing, and transferring high interest balances. There are automatic debt repayment plans as well.
3. Look for Additional Sources of Income
If you are unemployed or underemployed or have a seasonal job, then you may want to look for additional sources of income. One option is to look for part-time employment or a second job to increase your income. There are other ways to make money in the form of passive income. One is to open a high interest savings account to earn a higher yield. Another option is to invest in other low-risk products such as certificates of deposit or government securities. This is provided that you have some free cash on your hands.
4. Increase Your Payments
This is one way to save on interest charges and repay outstanding balances over a shorter period for a debt-free future. Always try to pay more than the minimum, especially on high-interest credit cards. If you have a low-interest card, you may want to use it to make payments. Note that if you only pay the minimum on a high-interest account, charges accumulate over time, and you are more likely to be late on your payments. Late and missed payments can have a negative impact on your score and future ability to borrow.
5. Reduce your interest rate
There are several ways to reduce the interest rate, and the most obvious one is to shop around for cards with low interest rates. In fact, some financial institutions actually offer such cards and advertise very low rates of about 6 – 8 percent. This is the standard rate provided that you make on-time payments. Penalty rates are usually significantly higher and apply to late and missed payments. Another option is to apply for a balance transfer card. If you have high-interest cards, then you pay a lot in charges, especially if you only pay the minimum each month. If you use a card with a high interest rate, then you should always try to cover the full amount. Otherwise it is better to use a low-interest product or transfer your existing balances to a card with a promotional period and a low rate. There are good balance transfer cards with long promo periods of 12 – 18 months and zero or a very low rate over the intro period. A third option is to contact your issuer and try to negotiate a lower rate. If you are a regular customer with a steady payment history and healthy credit score, they may actually agree to do this to keep you in.
6. Use Cash or Debit
This is a good idea, especially if you have multiple card accounts and a lot of debt to sort out. Either use your debit card to make payments online and in-store or carry cash with you. You may want to take small amounts with you to avoid the temptation to make frivolous purchases and overspend.
As you can see, there are many ways to reduce your debt load by Thanksgiving, from developing a budget and finding additional sources of income to trying to reduce the interest rate and using cash. If you have multiple debts, including consumer loans, mortgages, and credit cards, you may want to develop a repayment plan to get rid of debt faster.