Here are ten tips to help you reduce your debt.
Live Within Your Means
It’s obvious, but it’s worth mentioning. When you live within your means, you don’t need to use credit:
- If you use the budget you created in Module 3 and you continue to spend less than you make, your financial situation will improve.
- Your credit score will begin to rise.
- You will eventually be offered better (lower) interest rates on credit cards and Installment loans.
- And when you have an unexpected expense, you can afford to use credit and repay it quickly.
Pay Your Bills on Time
When you pay your bills on time, you are building your credit history and putting yourself in a better position to obtain credit at lower rates in the future. But when you don’t pay your bills on time, not only will you have to pay late fees of up to $39 or more, but also you’ll be hurting your credit score. If you find it difficult to pay your credit cards on time because you have too many accounts and too many payments, you may want to consider consolidating debt.
Pay More than the Minimum Payment on Your Credit Cards
The minimum payment is usually about 2% of the principal owed. So if you have a balance of $2,000, your minimum payment will be about $40. If your interest rate is 8%, do you know how long it will take to pay off $2,000?
Over 30 years!
And can you guess how much interest you will have paid?
Nearly $5,000! And that’s if you always pay on time and don’t add another dollar tothe balance.
Here’s why your monthly minimum payment is primarily covering the interest chargedon the loan; the outstanding principal still remains, against which you will charged interest in your next payment.
If we offered you a $2,000 loan that would cost you $7,000, would you think it was a good deal? Well that’s the kind of deal you’re signing up for when you pay only the minimum on your credit cards.