Erasing Your Debt: Do's amd Don'ts

Some folks are trying to keep it a secret that the economy is improving. Polls say Americans are uncertain about their financial future. The data shows that Americans are racking up more debt in spite of their so called "uncertainty".

NerdWallet.com reports that our collective total debt is $11.74 trillion, up 5% from last year. the average debt for credit cards is $15,480, mortgage debt is $156,474. and student loans is $33,474 for Americans.

Experts say people make rookie mistakes when trying to rid themselves of debt. Here are some of the major no-nos: Taking out a pay day loan or title loan; transferring a balance to a new zero interest credit card, but failing to pay off the balance when the higher interest rates kick in; borrowing from a 401 (k) retirement account, especially if it involves paying a penalty. Putting creditors on a rotation, that is paying one creditor while making no payments on other debts is another bad idea. These methods seem to be a recipe for disaster. Debt settlement and bankruptcy should only be considered when you've run out of other options.

Here are some smarter methods to erase your debt:

Track your monthly inflows and out flows just like a dieter tracks calories. It takes a little discipline, but knowing the information is vital.

Prioritize paying off debt by interest rates. Pay off debt with the highest interest rate first, while paying smaller amounts or even the minimum amount due on other accounts. Do the math and see why this is a worthwhile strategy.

Make a realistic debt repayment plan and stick to it.   Setting specific goals and timelines gives you an easy way to measure your progress and allows you to enjoy a sense of achievement when targets are reached. Give yourself a small reward when you achieve a target. When you repay $1000 of debt, treat yourself to a book or a manicure/pedicure, then move on to the next target.

 

Make sure you don't miss any payments. Pay every creditor each month and pay on time. When you don't miss payments, debtors will sometimes lower your interest based on your excellent track record of timely repayment of debt. There are new programs on the market that make it easier to refinance your home mortgage, a car loan, medical bills and student loan debt. Lower interest rates means paying smaller amounts each month which enables you to improve your credit score with timely payments.

Funnel windfalls into debt repayment. Don't think of extra income as "more money to spend". Rather, use extra money as a means of reducing your debt more quickly. If you resist the opportunity to spend, you have an amazing opportunity to pay down principal balances and cut down on interest you'll pay.

If you're still struggling to reduce spending and increase savings, find ways to pick up extra income. There are opportunities out there and most don't require a long term commitment. Freelance work using your talents brings in income. Check the great sites i.e. Elance.com or Odesk.com for information. What about tutoring...a great opportunity on the side. Sell things you don't use or need on eBay or Craigslist to clean house and bring in some cash.

 

Get serious. Find new ways to reduce spending and save money to increase payment on debt. Save money on food. Take your lunch and eat out less. You'll probably eat healthier and might lose weight. Save money on entertainment, Find fun things to do for free. Cut cable cost. Use Hulu or Netflix at a far cheaper rate. Stop spending money on fashion and clothes. Wear what you have in your closet.

Debt won't go away unless you make it disappear. Open your mind, make a plan, and you can get the job done.

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