In today's economy, many Americans find themselves suffering from a large amount of debt. Many are struggling just to keep up with the minimum payments from their creditors. While there are several techniques that can be applied to conquer your debt, credit consolidation still stands as the quickest and most reliable method. There are many financial institutions that offer credit consolidation loans. What these types of loans do is group all your debts into a single loan, which is likely to carry a lower interest rate than your existing debt.
One of the first things that you need to do to conquer debt is to find out exactly what you owe. Many people overlook this simple rule. Determine how much your total debt is, then determine how much your monthly bills are. Include payments on your debt when you calculate your monthly bills.
The next step is to determine your discretionary income. The difference of income minus necessary expenses is your discretionary income. After you have done this, it is time to start making decisions. You have to figure out what you can afford to pay, and what you have to cut out. Things that are absolutely necessary should be at the top of the list, while things that are not should remain at the bottom.
Once you have established this prioritized list, stop adding on to your debt. You should start using cash at all times to pay for the things that you want. You don't have to close your credit card accounts, you just have to stop using the cards completely until you have paid your debt down. If you do close your credit card accounts, you stand a chance of negatively impacting your credit rating.
If you have a credit card and have only been making the minimum payment every month, then make sure that you start doubling up on your payments. When you only make the minimum payment, the interest rate has time to accumulate more over a period of time. You also want to try to pay more on cards that you have with higher interest rates. As a general rule, you should start off with any cards that have an interest rate of 10% or more. You also have the option of calling the credit card company and asking them to lower your interest rate. If they agree to drop your interest rate by even 5%, this could mean hundreds of dollars of instant savings.
If you have any extra income, put that towards your debt. People who are serious about ending their debt, tend to scrutinize their expenses. If you have any unnecessary expenses such as cigarettes, alcohol, lunch money, etc., cut down on it. You also want to keep track of your progress. Use a spreadsheet with your personal debt data on it, and update the spreadsheet every month. This will allow you to see exactly how much progress you are making toward your goals. It is also a good idea to get your credit report on an annual basis.
If you are sticking to your plans, then your credit rating should go up every year. Sometimes there is inaccurate information on your credit report, so make sure you address those issues as soon as possible. You should create an emergency fund by using a portion of your discretionary income. You should take somewhere between 5% to 10% of your income and allocate it towards your emergency fund. If you cannot afford to allocate that mush of your income to your emergency fund, just do what you can. If you put these principles into action immediately, you should be out of debt in no time.
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