If managed properly, utilizing credit lines to make purchases is a reasonable action. It is even beneficial in some cases as it establishes creditworthiness and can produce rewards in the form of cash back and travel vouchers. Sometimes it is a necessity to acquire debt for large expenses that you don’t have immediate cash assets for. This strategy is commonplace for a majority of consumers in one way or another and is not detrimental at first glance.
The problem arises when credit is accessed too much and is not paid back quickly enough. This essentially means you continue to borrow more than you have repaid, and are continually sinking deeper into debt. Before you know it you may owe tens of thousands of dollars at high interest with no foreseeable way to climb out of the pit. This can eventually lead to additional stress in your life and may also hamper your efforts to get future loans for items like homes and automobiles. While there is no quick fix for getting out of debt short of a financial windfall, there are steps you can take to gradually reduce your obligations.
Don’t Create More
The first action to take in reducing debt is to not add any more to it. This is especially true if you typically just pay the minimum payments and nothing else. Otherwise it creates a revolving door of borrowing that you’ll struggle to get out of. Here are some tips to stop piling on to your debt accounts:
- Hide or destroy credit cards and use debit or cash only.
- Do not apply for any new credit cards or loans.
- Avoid spending more than you make.
This mainly applies to those people with a persistent history of borrowing. Sometimes life events such as a loss of employment make using credit unavoidable for a time. If that becomes more than temporary, more drastic measures will be needed to prevent debt spiraling out of control.
Raise What You Pay
Paying the minimum monthly amount on your credit and loan bills will certainly avert hits to your credit score, but in most instances, it will do little to reduce your debt quickly. If you owe thousands of dollars and throw just the minimum at it each month then it could take years to repay – even if you don’t add to it. Focus on one account and pay more than what is required. Think hard about where you can cut costs and start setting that money aside at the beginning of the billing cycle. Paying more is truly the only way to gain any significant ground.
Create a Budget
If you feel like your spending habits tend to run away quickly or you’re not sure where to slice costs, then sit down and make a budget. Create categories for your purchases and track what you spend. It will become evident where most of your charges are going and only then can you work on what can be cut out. Unless something is truly a necessity, set a cap on your monthly spending for that category and tell yourself to wait until next month to make the next purchase.
Find Lower Rates
Many credit cards have very high-interest rates which means depending on your balance you could be paying a significant fee on each statement. Combine this with a low minimum payment and you will barely be making a dent in your debt. Search around for cards that offer a lower rate and transfer balances to them. Some may offer a much lower promotional rate, which will at least give you some time at low interest to make progress without much penalty. Consider a personal loan from brick and mortar institutions such as GBTI Bank that will also save on interest fees.
Making a budget and watching spending may help make incremental gains, which is far better than nothing, but if you’re looking for a quicker solution then a large influx of cash is the only option. The first thought may be that if you had the cash then you wouldn’t be in this situation in the first place, but here are some ways to drum up extra money for bills. It may be tempting to use this cash for another purchase or something you’ve wanted badly. Instead, by putting it towards debt reduction you will feel better about your financial health.
- Sell things you don’t need (clothes, shoes, furnishings and home items).
- Get a source of income other than your main job.
- Reduce spending on gifts for others on holidays.
- Use bonuses or commission incentives.
Working yourself out of significant debt will take structure and time, but it is not an impossible feat. By maintaining awareness and discipline you’ll soon find the total value you owe decreasing to a more manageable level.