Debt reduction - Tips and strategies to fight your debts

Watch the video: Worried about debts? Find a suitable solution!

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How a company helps in paying back debts:

  • Advisor decides on a monthly amount you've to pay to the company
  • The money gets deposited into a trust account created in your name
  • The advisor negotiates with creditors to reduce the payoff amount
  • Once a creditor agrees, the company pays from the trust account
  • Thus, you reduce all your debts, one by one, and become debt-free

If you're struggling to meet your monthly bill payments and need to reduce your debt amount so as to pay less than what you owe, debt reduction is what you should choose.

What is a debt reduction program?

A debt reduction program is offered by debt settlement companies that work with creditors and collection agencies in order to trim down your debt balance. It is similar to a debt settlement program (or debt negotiation).

Prior to offering debt reduction services, the settlement company will arrange for a free debt counseling session with you. The purpose is to find out whether debt reduction is the right choice for you or if you need to choose some other debt relief option.

When should you reduce balance?

You may reduce the outstanding balance when:
  • You're in financial hardship such as job loss.
  • You're paying a lot of cash towards medical treatment.
  • You don't have enough money to pay interest.
  • You'd like to pay off dues with a lump sum payment.
  • You wish to avoid dealing with several creditors/CA.

What strategies can I follow to reduce debt on my own?

You can choose Debt Snowball or Debt Avalanche to reduce your debt burden on your own. Both debt snowball and debt avalanche methods are helpful ways to get out of credit card debt. However, giving priority to high interest debts by choosing the debt avalanche method is surely a better option when it comes to credit card debt reduction.

You may also use the Snowflake method which is helpful in dealing with credit cards as well as other dues. This method requires you to make multiple micro-payments to reduce your balance and pay off dues faster. Find out more about the Snowflake method.

Can I negotiate for credit card debt reduction on my own?

Yes, you can negotiate to reduce your credit card debt on your own. Just follow the steps on how to settle your debts yourself. To find out how much you can settle the debt for and what you'll save, use the Debt Reduction Calculator.

You can reduce your payable monthly amount by choosing debt consolidation. This can be done by negotiating with creditors for lower interest rates on your bills. When your rates are lowered, you pay much less in interest, and hence your monthly payable amount is reduced.

Which options can help you trim your balance?

There are 2 ways by which you can reduce the balance you owe. These are:

Settlement Program:
It is a debt reduction program that can help you erase a part of the balance on your accounts. With settlement, you'll get rid of dues within 2-4 years. Check out the pros and cons of settlement. You may also use the Settlement Calculator to determine how much you need to pay after negotiation and what amount you'll save.
Do it yourself:
In case you'd like to get rid of dues without taking professional guidance, you can negotiate with your creditors yourself to reduce the outstanding balance.

6 Debt reduction tips to watch out for

Here's a checklist of what you shouldn't do when you're on your way to paying off your dues faster.

  • Do not go for new credit when you're on a debt resolution program
  • Do not make a big purchase with a credit card or loan
  • Prepare a well-planned budget and control your expenses
  • Look out for ways to supplement your income
  • Try making extra payments on your bills as and when it's possible
  • Pay more than the minimum on your credit/store cards

Debt reduction mistakes you must avoid

  1. Creating unrealistic debt repayment plan: Creating an unrealistic and impractical debt repayment plan will be a big mistake. You can't clear debts in one instant just like you can't lose 10kgs of weight in 1 day. It will take a few months to change your lifestyle to reduce your debt level. Make sure you make a debt payment plan that will help you fulfill your debt obligations with ease.
  2. Managing all the debts simultaneously: You should not try to handle all your debts at the same time. When the debt amount is quite huge and there are multiple accounts to deal with, it will be quite problematic for you to manage them simultaneously. So, it is advisable to focus on 1 debt each time. Your sole focus will be to eradicate one debt at a particular time. This will help you achieve steady progress.
  3. Canceling credit cards: It is better to not cancel the credit cards in a hurry. Canceling credit cards with balances will not solve your problem. Rather it will aggravate it. The reason is, it makes a negative impression on the credit card company. You will not be the customer of the credit card company after closing the accounts with them. Thereafter, the credit card company will have less interest to work with you. So, you should not close your credit accounts until you have paid off the outstanding balances.
  4. Taking out second mortgage: A lot of consumers consolidate debts through second mortgage. But studies have shown that most of these consumers end up getting into credit card debt and mortgage debt problems in future. Some of them have even lost their homes to foreclosure. This is why, it is better to think rationally before consolidating debts through second mortgage. You should check whether you can afford to pay off the credit card debt without using second mortgage. Ask yourself whether you can make mortgage payments timely. This is because your home is at stake. If you can't make the required payments on second mortgage, then it is better to not pay off your credit cards through it.
  5. Making large purchases: You should not make huge purchases with your credit cards when you are trying to eliminate your debts. If your television is damaged completely, then purchasing a brand new tv with credit cards will be a big mistake. Wait till you eradicate your debts completely. Once all the debts are repaid, you can gift yourself a television as your reward.

Last Updated on: Thu, 11 Feb 2021