High debt balances are serious issues that can have a detrimental impact on your life. Regardless of whether you have one or multiple credit cards with high balances, numerous loans, a high mortgage balance or something else, you understandably want to get out of debt as soon as possible. High debt balances can prevent you from living comfortably, saving for the future and even enjoying the type of lifestyle that you could otherwise afford if you did not have debts. Reducing and eliminating your debt balances may seem impossible, but a closer look will show you that you can actually produce the results that you desire simply by walking through a few important steps.
The most important step that you can take to reduce and eliminate debt is to stop spending. Your current spending habits may be adding new charges to your credit card accounts regularly. Even expenses that are not paid with a credit card can affect your financial situation. After all, when you spend money on extras with cash, you are spending money that otherwise could have been used for debt reduction. Understand what are essentials in your life and what are unnecessary extras that you do not actually need. Commit to living a more frugal lifestyle.
Create a Solid Budget
As you work on controlling your spending habits, you must then focus your attention on trimming back your regular expenses. To begin this process, create a realistic and accurate budget that lists all regular sources of income and all regular and non-recurring expenses. The more accurate this budget is, the more useful it will be. Rather than focus on altering numbers so that they look nice, make them accurate so that your budget is as useful as possible. Once your expenses are listed, review each one individually. Determine if it is a necessity, such as if you truly need cable TV when streaming video options are much more affordable. Otherwise, determine if you can reduce the cost of the expense, such as by shopping for lower auto insurance rates or refinancing your home mortgage payment.
Fund a Savings Account
By taking these two initial steps, you may have made great strides toward improving your financial situation, and you may be living much more comfortably with a budget that is easier to manage. Now, you will need to make thoughtful decisions about how to allocate the extra money that may be in your budget. Funding a savings account is a smart initial step to take. Savings account balances are directly linked to credit card debt. This is because people who have more money available in savings are less likely to resort to making credit card purchases when an unexpected expense arises. Before you start focusing heavily on debt reduction, deposit a comfortable amount of money into your savings account. Continue to add small deposits to this account over time so that the balance grows regularly.
Focus on High-Interest Rate Debt
After you have funded your savings account, you can use any extra money that you have available each month to pay off debt. For the biggest impact, focus on high interest rate debt on revolving accounts, such as credit card accounts. Another strategy is to pay off low-balance accounts. For example, if you have an account that may be paid off within a few months, you could eliminate that debt before focusing on high-interest rate accounts. Allocate as much money as possible toward debt reduction for the account that you have decided to focus on. When you have paid this account off, move on to the next account.
Consider Debt Consolidation
You can also consolidate debts into a fixed term loan with a lower interest rate. When debt is established on a fixed term loan, you have a defined pay off date. In addition, you may be able to reduce debt more quickly than with a revolving term. Use debt repayment calculators to determine which strategies will yield the best results for you. Debt consolidation is an option through a traditional bank loan, cash-out refinance on your home loan and other similar financial solutions.
Explore Alternative Financial Solutions
Another smart idea that may work well for many homeowners is to use a reverse mortgage. Check on Gooddayreverse to find a suitable solution. While you could refinance your mortgage, refinancing requires you to make monthly loan payments. Through a reverse mortgage, your lender gives you regular payments. This extra income can be used to pay off debts.
As you can see, there are multiple steps that you could take to regain control over your finances. If you are focused on eliminating debt, turn your attention to these tips, and find the solutions that are most applicable to your situation.