The latest issue of Kiplinger’s has a big section on debt reduction, including a list of tips for getting rid of whatever debt you might have. While a number of the tips are pretty standard stuff stiff, I still thought they were worth highlighting, especially given the current economic climate.
- Break your debt into small pieces. Whether you choose to pay highest interest or lowest balance first, it’s important to view your debts individually rather than looking at the whole, depressing ball of wax. The key is to stay current on everything, but focus on knocking out one chunk at a time.
- Track your spending. While you may often run out of money before you run out of month, you probably have more money coming in than you think. By tracking every penny that you spend, you can get a better idea of where everything is going, hopefully cut some extraneous expenditures such that you can throw a bit extra at your debts.
- Don’t miss any payments. As I said in #2, above, it’s important to stay current on all of your debts. You have a tough enough job ahead of you. Don’t harder by adding penalty fees and higher interest rates to the mix. Also, if your credit score falls, you might wind up paying more for things like insurance.
- Boost your income. Cutting spending can only get you so far. Another great way to supercharge your debt reduction efforts is to increase your income. Pick up a second job or, at the very least, sell your extra stuff on eBay. Then take whatever extra income you generate and throw it at your debts.
- Get help. Honestly, I have a tough time with this one as a blanket tip, as there are so many credit repaid and debt reduction scams out there. However, if you’re in over your head, you should consider getting help from a reputable credit counseling agency or financial planner. You can start your search for a decent agency at NFCC or the AICCCA.
To these, I would add… Stick to it. No matter how good your plan, it won’t work if you don’t see it through to the end. This is easier said than done, so take Step #1 very seriously. If you need the psychological boost, definitely consider attacking the smallest balances first to get a few small victories under your belt.