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5 Easy Ways to Reduce Your Debt

5 Easy Ways to Reduce Your Debt

12/09/2014 12:08 am0 comments

If you are like the average person in regards to debt, you may feel like you are in a deep hole with no idea as to how to get out.   This is all too common today and can lead to increased stress, anxiety, depression, and other health problems.   Well, debt can be easy to get into but difficult to get out of, however here are five simple ways to help reduce your debt.

  1. Stop spending more than you make – This is the most obvious but maybe the most difficult as it requires a behavioral change which is often very difficult without a very specific plan and accountability.   The first thing to do is to create a budget.   If you’ve never created a budget before or have rarely followed a budget read my budgeting post about creating a simple budget.  It doesn’t have to take much time at all each month and will make you feel much better as you will know exactly where each dollar is going to go.
     
  2. Pay off your debts smallest to largest – You may wonder why anybody would want do do that.  Isn’t it always best to pay off the debt with the highest interest rate first?  In mathematical terms yes it does make sense to pay off the highest interest rate debt first.   The only problem with that is it may be a large debt and may take awhile to pay off.   When attacking your debt, it’s important to have some quick victories and see some initial progress as soon as possible so paying off that smallest debt will get you going quickly and help you see progress.
     
  3. Get rid of those credit cards – But everyone needs a credit card to pay for things right?   That’s what we hear much of the time from advertisements and may have even been taught growing up.  There’s very few things that you cannot use a bank debit card to pay instead of a credit card.   Things like renting a car may be a little more difficult but it can still be done.   The important thing is to change your behavior of paying for things with a credit card.   Some people will say they pay off their credit cards each month so never pay any interest.   There are some people who can do this but if you have credit card debt you are not one of those people.   You may be able to learn to do that later on as part of your debt reduction process but in order to reduce and ultimately get out of debt you need to change the “spending” cycle you are in and get rid of those cards.
     
  4. Pay for things using cash – What?   You mean really use that green paper called cash?   Yes I know it sounds like you are going back in time but there’s some benefits to paying with cash.   First when you use cash you are more aware of how much you are spending and the cash in your hand is finite whereas using a credit card often allows you to spend more than you normally would with cash without even realizing it.  Using cash forces you to allocate a specific amount to something you are buying and when actually seeing the cash in your hand it psychologically tends to cause us to spend less.
     
  5. Get rid of that car payment – You said what?   Now you are really going crazy.   Sure who doesn’t love a nice car and enjoy driving it.   Most people do however many people pay a hefty payment each month for their car and then wonder why they have no retirement savings later.   It helps to remember that most cars are not assets but depreciating liabilities.  New cars are in most cases bad deals because they depreciate so fast.   Until you are able to pay cash for that new car just simply drive a nice used car.   I think you will find that you will feel less stressed about having to make that car payment each month and more at peace with knowing you are able to save that money for something more important such as kids college or your retirement.

I hope these tips are helpful and will start you on the path to being debt free.   It really is very freeing to be debt free and have financial freedom.   Feel free to post your stories about your debt struggles and any questions or general comments.

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