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A brand new year often inspires positive life changes such as breaking free of debt. If collections calls have been interrupting your dinner or you're just stressed out from heavy-duty debt, here's how to eliminate the burden.
In order to solve a problem, you need to fully understand it. Assess your situation by listing all your debts, including balance owed, interest rate and minimum payment required for each. Next, order your free credit reports to make sure you haven't forgotten any debt or overlooked errors. Finally, compare your income and expenses and calculate how much you can realistically use toward debt reduction each month.
The last thing you need is anything that increases your debt. Commit to not taking out any new loans or credit lines and, if possible, avoid incurring and charging additional expenses on existing accounts.
You'll save more in the long run by paying off debts with the highest interest rates first. This category usually includes consumer debt such as credit cards, personal or payday loans, and medical bills. Other types of debt, such as mortgages, car loans and student loans, typically have lower rates, making it more affordable to pay them off over a longer period. Throw as much money as you can each month at your highest-interest debt while still making timely, smaller payments on everything else. Then focus on paying down the next higher-interest loan.
When multiple debts are out of control, debt consolidation can be a lifeline. This refinancing process streamlines debts into a single monthly bill, often with lower interest and a smaller overall monthly outlay. This may help eliminate debt faster and less expensively. Home equity financing, personal loans and zero-interest balance transfer credit cards may provide effective options.
Even the best debt-reduction plans are useless without having enough money. Do the following to improve your cash flow:
Why work hard to pay off debt just to end up in the same boat next year? These approaches can help ensure lasting success in curbing expenses and avoid building up debt:
Eliminating debt can bring dramatic changes over the coming year. In return, you'll enjoy improved financial health, stress relief and the freedom to spend your paycheck on what really matters instead of having it siphoned away by past obligations.
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