Credit Debt Reduction Strategies

Many people are currently struggling to pay off the large amount of debt they have accumulated over time. The recent downturn in the economy caught most by surprise, leaving them without a steady income to make even the minimum required payments on their credit cards and other financial obligations. And, unfortunately for most, the end is not on the horizon. Years of overspending have now created a mountain of debt that will take time to pay off. Yes, it takes time, but if time is what you have, use it to your advantage. There are different credit debt reduction strategies you can employ that will put you on a path to financial freedom.

Debts accumulate when we borrow money for short-term use or an emergency expense. Your debts will also accumulate when your debt-to-income ratio increases, delaying your ability to make timely payments. The interest rate adds up and your credit score goes down. The first thing to do in a credit debt reduction strategy is to establish a plan. You will need to gather all the information related to what you owe and to whom. You can never get started on debt if you don’t know how much you owe. It may surprise you that most of your credit accounts and bills can be eliminated simply by cutting back on unnecessary spending.

A common practice among many people overloaded with debt is to use a debt consolidation strategy to reduce credit debt. Having different credit cards with different interest rates can often make it difficult to keep track of payments. Late payments come back the next month with additional interest and a late payment fee. Debt consolidation helps you avoid this situation. Multiple loans and credit cards are consolidated into one affordable monthly payment. If you own your home, you may be able to get a home equity loan or line of credit if your home hasn’t lost too much value during the foreclosure crisis. Keep in mind that you could lose your home if you don’t repay the loan on time.

It may be worth considering a debt settlement program if you have more than $10,000.00 in debt. In this type of program, a person who works for a debt settlement company will negotiate a settlement amount that is much less than the actual balance of the debt. Sometimes they can negotiate 40% to 50% of the loan balance to pay off the debt and leave you free and clean after paying off the obligation. The downside of debt settlement is that you will have to come up with a lump in a shorter period of time. If you’re in too much debt anyway, that can be quite difficult. You may also be responsible for paying taxes on the amount written off as income.