Debt Reduction Strategies
Debt in the Middle Ages was unheard of because charging interest to lend money was considered a crime. However, your average serf was not bombarded with colorful ads everywhere he looked. He didn’t have nearly as many choices. There were only a few places he could buy things. Not so for us. Credit is easy to come by today. Some people have ten or more credit cards with a balance on every one. However, the current recession, with its rampant unemployment, has frightened a lot of people. Many are cutting up their credit cards and going back on the cash basis. If you do the math, the amount of your credit card debt may scare you.
What can you do to reduce it? There are two basic strategies for debt settlement reduction. First, stop charging things. Once you’ve made this decision, cut up all your credit cards except one for emergencies. Notice I did not say close your accounts. If you have balances on them, you probably can’t anyway. But once an account comes down to a zero balance, leave it open or your credit score may be negatively affected. One of the factors used to calculate your score is the percent of your available credit you are using. The lower this percent, the higher your score.
Next, begin to settle tax debt and reduce your debt in the most efficient way possible. As painful as this may be, make a list of each account with a balance. Include the amount, the interest rate and the monthly payment. Put the account with the highest interest rate at the top of the list. Every month, apply all your spare cash to that account and make minimum payments on the others. When the first account is paid off, move the next account to the top of the list and follow the same strategy.
Paying off your credit card debt may take some time. After all, you didn’t get this far in debt in a day. But, if you put yourself on the cash basis you’ll find that using cold, hard cash makes a transaction seem much more real. And, if you begin to make progress paying off your accounts, you’ll enjoy the sense of accomplishment getting out of debt can bring.
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