Cutting Debt in Half

Getting rid of 50% of your total debt might seem like an insurmountable task, especially if you are currently struggling with several payments, but there is a way to drastically reduce what you owe. In order to be successful, debt reduction has to be strategic and constant.


Take a look at the following tips for an example of how to cut your debt in half.


Organize Outstanding Balances

The first step must be to get an accurate picture of your debt situation. Often people who feel bogged down by debt have no idea exactly how much they owe because they have stopped looking at statements. They avoid keeping track of the numbers to stop feeling so overwhelmed. This is a big mistake, because if you don’t know how far in debt you are, it is impossible to devise a way out, whether it be on your own or with the help of a debt consolidation company.


Pull out all the statements with balances. This may include unpaid bills, overdrawn current accounts and credit card statements. Then make a list of all the balances starting with the amount with the highest interest and working your way down to those with no interest charges.


Take a Look at Your Budget

Now that you have itemized your debt, you need to go through your budget with a fine tooth comb. You will be looking for ways to reduce spending and divert the excess cash to debt payments.


If you don’t have a budget, now would be a good time to draft one. Simply write down your income on one side and on the other make a list of your expenses. Get your receipts from the last month together to help remember where the money was spent. You can now commit to curb all spending except absolute necessities.


Try Negotiating With Creditors

It couldn’t hurt to pick up the phone and call your creditors to try to negotiate better rates or lower minimum payments. Let them know that you are going through a difficult time but that you are committed to paying your loan or facility. You may be able to talk your way into a lower interest that can significantly hasten how fast you can deal with your debt.


Implement the Debt Snowball

You may have heard of the debt snowball before, but you might not know how to implement it to your own situation. It is actually a simple process.


Look at the list of your debt obligations that you prepared earlier. Try to find ways of transferring larger high interest balances to lower interest instruments. For instance, you may have a large balance on a high interest credit card and a smaller balance on a credit card with a low introductory rate. Transferring from the high to the low interest means you save immediately on the interest payments.


The next step is to allocate money to your different outstanding balances. This is where the snowballing comes in because your payment balances will start to come down like an avalanche. To do this, you keep paying the minimum payments on all credit cards and your bills. You apply the extra to the debt with the highest interest (on the top of the list) until it is paid off in full. Then you repeat the process month after month until you have brought your debt to a manageable level.


Cutting your debt in half is possible if you come up with a plan and stick to it until you achieve your goal.