- Pay Your Bills on Time
To maintain a good credit score, you have to keep up with the minimum payments on each of your debts each month. Penalties will be added to what you already owe if you miss any payment. Missing a payment by over 60 days creates a negative item on your credit report.
The single biggest factor used in calculating your credit score is your credit history. It therefore means that a single late payment is enough to have a significant impact and may even decrease your score by as much as 100 points or even more.
It means that the foundation of any debt management plan should be to keep up with your payment requirements each month. If you are unable to do that on your own, you should consider seeking help immediately. Avoid procrastinating and allowing your debt to ruin your credit.
- Negotiate Lower Rates with Creditors
The first step you need to take to make managing your debt easier is reducing the interest rates applied to it as much as you can. This helps to minimize the cost of getting out of debt and makes it easier for you to get to zero faster; you can focus on the principal (actual debt owed). That means negotiating with creditors for a lower interest rate on all of your accounts.
- Avoid Focusing on Multiple Debts
If you don’t like the idea of using special debt repayment options, implementing strategic debt reduction is something you will need to do. It means that you should focus as much as possible on paying off one debt at a time. You ideally want to focus on the debt with the highest APR first.
Run some numbers to find out just how long it will take for you to become debt-free. You can use a debt calculator for comparing minimum payments to making larger fixed payments.
- Consider Using Balance Transfer but Don’t Abuse Them
If negotiation fails to get the desired rate results with your accounts, you should consider a debt transfer. It simply refers to opening a new credit card specifically designed for balance transfers. It lets you transfer your existing balances for a minimal fee. The benefit of these cards is that they typically have introductory periods of 0% APR, where you can pay off your debt without paying any interest.
The length of the introductory period will vary depending on your credit score, but it is usually anywhere from 6 to 18 months. The goal is eliminating all the transferred debt, plus the fees, prior to the expiry of the introductory period. Calculate carefully to transfer an amount of debt that you can realistically expect to pay off before the end of the introductory period.
If you do a balance transfer for just a portion of your debt, make this card the very first one that you focus on eliminating. It will help you save money because the payments are totally interest-free.
- Discretionary Expenses Should Be Minimized
Debt reduction and balance transfer payoffs tend to be more expensive if you have more cash. So, the more you are able to cut back on your other expenses, the more cash flow you will have to become debt-free. Here are some of the tips you can implement to cut back:
– Suspend or cancel services you can do yourself (house cleaning, pool care, landscaping, etc.)
– Minimize streaming entertainment accounts (gaming, music, TV, movies)
– Cancel your gym membership and instead work out at home or save on your commute and gym by exercising when running or cycling to work
– Take lunch to work and reduce the number of times that you dine out
Always remember that cutting back as much as you can accelerates your debt management plan. However, avoid doing the financial equivalent of a crash diet; it may end up leading to spending splurges. Commit yourself to a plan that you are capable of maintaining.
- Avoid Neglecting Your Savings
Savings is one thing that you must never cut out to eliminate debt. You always need to make it a point to save; think of it as a bill that you owe yourself. You should ideally be saving 5 to 10 percent of your take-home income each month. However, you need to at least save something every month. Otherwise, living from paycheck-to-paycheck puts you just one unexpected expense or emergency away from additional debt.
You need to have savings and contribute to savings if you wish to cover unplanned expenses in emergencies. That means you shouldn’t cut off your savings to pay off debt. You don’t need to spend every penny to effectively get out of debt; if you must, it therefore means that you need to seek out an alternative solution.
- Increase Payments as You Free Up Cash Flow
Whenever you eliminate a credit card debt, you eliminate that debt. It means that you will have additional funds to pay off the next debt. While you can use the cash that you freed-up to reinstate your discretionary expenses or relax the need for budgeting; it is better to roll it into debt repayment.
Always remain committed to repaying your debts as well as knocking out balances.You may qualify for a debt management plan to help you to manage and reduce your debts. Find out more in this article: How do I qualify for a debt management plan?
