Eight Ways to Reduce Your Debt Burdens

Tips to help your financial management this holiday season.

11/24/2015 7:00:00 AM
Eight Ways to Reduce Your Debt Burdens

Using debt as part of an overall financial strategy can be a good thing. Debt becomes a bad thing when you have too much of it, have the wrong kinds or when its presence causes undue anxiety or bad behavior. Here are some ideas to help you make sure you are controlling your debt and not the other way around.

1) Set priorities for using debt. Borrow money for things that provide long-term and lasting value. Borrowing for college costs is probably good while charging another extravagant vacation on your credit card is probably not a good use of debt.

2) Use the best type of borrowing. Whether it is choosing a credit card or a home mortgage, be sure the terms of your borrowing match your goals and how you manage your finances. If you pay every credit card bill in full and do not incur any finance charges, it may be OK to have a card that has a high interest rate but offers rewards for use (like miles or money back) or has no annual fee. If you carry over balances and pay finance charges, the interest rate becomes more important.
If considering a mortgage, first identify the type that matches you behavior. If you plan to sell your house soon, you may want an Adjustable Rate Mortgage (ARM) with a lower interest rate. If you plan to stay in the home or cannot afford any increase in payments if interest rates rise, consider a long-term fixed rate mortgage.

3) Eliminate high cost borrowing. Determine if you can convert high interest rate debt to another type with lower rates. If you are paying interest on credit card balances, find a card with a lower rate, but watch out for "teaser" rates. If you have equity in your home, consider a home equity loan to consolidate all your debts at a lower rate.

4) Pay down your debt. Incurring interest charges you cannot afford or you do not want is not a good use of your money. Find ways to pay down what you owe even if it takes discipline and sacrifice. Pay more than the minimum due on credit cards. Do not buy that piece of clothing you really do not need or take a fancy trip when a visit with family would be just as enjoyable.

6) What if you cannot pay your bills? This is when you should get help. First, stop incurring more debt - quit using or destroy your credit cards. Then contact your creditors to work out a payment schedule. Explain your situation and that you want to pay what you owe. They may be able to help. If not, at least you have tried.

7) Do not bounce checks. Keep an eye on your account balances and make sure you have enough money to spend or you may be charged for writing a bad check. It also looks very bad to a creditor if your check bounces. Consider using easy and convenient online tools like Online and Mobile Banking to monitor your accounts.

8) Getting professional help. There are several non-profit organizations, such as Consumer Credit Counseling, that help individuals when all else fails. They can help you create a plan to work your way out of debt. Look in your phone book for a local office. Their service is free and has helped thousands. Be very wary of organizations that offer to fix your credit rating or want you to pay a fee to get you out of debt easily.

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