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Debt reduction: A step-by-step guide

January 16th 2013

You get into debt because of a few wrong moves but there are ways to get out of debt too. It requires a little self control and a lot of self discipline and you can become debt free and independent once again. Beware of quick fixes even when you are too much into debt and feel tremendously tempted to take on such an offer. You need to put in some extra effort on your part and you can become debt free again. You may use a debt reduction program on your own to get rid of your debts. If you think you cannot handle it on your own, seek professional help.

Here is a step-by-step guide to a do-it-yourself debt reduction program:

  • Analyze your debts: Take a look at the debts that you have. Gather your financial documents, your credit report and see how much you owe. You may write it down on paper for future use.
  • Have a budget: If you still haven’t got one then it is time that you did. Prepare a budget for yourself. First list out all what you think you want and all that you need. Circle out the wants and see if you can put them aside for a while. Keep only the basic needs and then find out what your total expense for the month will be. Once that is done, see how much balance you have, to pay off your debts. If the amount here is too small, then maybe you would like to review your budget and look for ways to cut back expenditure and put it towards paying off your dues.
  • Prepare a payment plan: Once your budget is set, you can now prepare a plan for reducing your debts. Star by paying off the card that has the highest interest rate and then gradually move on to the card with lower rates. This way you can reduce your debts in an order and feel less stressed too.
  • Negotiate with creditors: While you are making payments on your dues, try and negotiate with creditors and see of they can modify any term for you. You may want to negotiate a settlement. Some creditors may not agree on settlements while some may. So, don’t lose faith. You may also consider moving some of your balance to 0% interest cards to avoid paying the interest on your cards.

With a debt reduction plan, you need to be very disciplined and must never default on any payment. You may want to keep a chart of progress that you could maintain till the time that you pay off all your debts.

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