Guide For Reducing Debt

When you spend more than you earn, you end up in debt. It's a pretty simple equation. Being in debt can make it difficult to live routinely with spending but more so to get approved for any type of new credit. Good news, the steps for reducing and eliminating debt are also a simple equation. The hardest part is staying on track and being consistent.

The first thing you'll want to do on your road to becoming free of debt is to reduce the expenses that you don't necessarily need to live, like going out to the movies, vacations, etc. Then, create a budget of all the discretionary expenses you have, like bills, rent, food, etc. Subtract that from your net monthly income. That amount is not what you will have to contribute extra towards your debt. You'll want to leave yourself left with some emergency funds, so consider utilizing around 70% of that surplus every month towards getting rid of your debt.

Credit Card Debt
When you are late with your credit card payments, interest rates skyrocket, and fast. And once rates increase like this, you may find it difficult to make more than monthly minimum payments on your bill. So, make sure you pay your bills timely, every month, so that you can steer clear of this sort of predicament.

However, if you've already been delinquent and your interest rates have been jacked up, you'll need to formulate a new plan. What you will want to do is determine which credit card you are paying the most on (highest interest rate) and start throwing as much money as you can towards it every month, until you pay it off. Once you pay that card, rinse and repeat with the next highest interest rate card, and so on. This plan may take a few years, but it is an excellent route to getting debt free.

You may also want to consider transferring your credit card balances to one card that has a 0% balance transfer and lower intro APRs. It is important that if you decide to go in this direction, that you understand all of the terms and conditions of the new card. The cost involved with balance transfers can often be 3-5% of the amount transferred. And your goal should be to pay off the total balance prior to the intro rate expiring. And if that's not doable as a result of your total credit card debt being too high, make sure the actual interest rate, after the teaser, is lower than what you currently pay.

Mortgage
In the event that you are finding it hard to pay your mortgage or if you are already behind, contact your lender immediately and let them know. They may be able to work with you by offering a lower rate and/or monthly payment. If your situation is dire, ask your lender if they participate in the Hope for Homeowners program. Hope for Homeowners is a government run program that encourages lenders to refinance mortgages of borrowers that are at risk of losing their property. According to HUD (Department of Housing and Urban Development) there are currently more than 200 lenders participating in this program.

Private Student Loans
After graduation, most college grads end up needing years to pay their private student loans off. The interest rates associated with students loans are variable and can be quite high, often in the upper teens. Having that sort of debt commitment directly after school is going to be burdensome, potentially making it difficult to payoff AND satisfy your day-to-day living costs. So….utilize the same plan for paying off your student loans as the plan for credit card debt detailed above. Pay off the highest interest rate loan first, and then move on to the next highest and continue till all your loans are paid off. Again, it may take you several years, but you need to start somewhere.

Medical Bills
Medical debt can be the fastest growing since medical situations typically come out of nowhere. If you have medical insurance, make sure the provider you use takes your insurance and if they will take what your carrier pays. It is very common for insurance companies to only pay a percentage of what your doctor bills them. Some doctors will expect you to pay the difference. What your obligation is if your insurance doesn't pay a bill in full will be detailed, as required by law, when you execute all the paperwork needed to become a patient. If you signed your life away without really going over all that paperwork, call the office, they will tell you the provider's requirements when it comes to partially paid settlements.

In the event you already have medical bills piled up, that you are having a hard time paying, contact your provider and let them know. They will likely work out a payment plan for you that will allow you remit a portion owed every month till it is settled. It would be a good idea though, that before you contact your provider, that you figure out what you can afford to contribute towards your medical bills. They may ask you, and you'll want to be prepared with that answer.