Acquiring and repaying debt is crucial to building a good credit score. It’s simple to let even a small debt tumble out of control, however. Fortunately, there are key strategies you can deploy to reduce your debt. Are you curious about how debt reduction works? Do you want to learn how to reduce your debt quickly? Keep reading to learn about effective debt reduction strategies and solutions.
Increase Your Debt Repayment Amounts
Most credit card companies require you to pay only two percent of your outstanding debt each month. Increasing your payment amount to 15 percent of the outstanding balance is a viable and practical debt reduction plan. For example, if you have a credit card with a balance of $1,000 and an interest rate of 22.4 percent, and you make the minimum payment of only $20 a month, it will take you 147 months, or 12.25 years, to pay off the card in full, and you’ll pay $1,928 in interest. By increasing your payment to $150 a month, it will take you only eight months to pay off the credit card, and you’ll pay only $78 in interest. That’s a huge difference and another reason to reconsider your debt reduction strategy.
Focus on One Credit Card at a Time
It’s simple to increase your monthly repayment amount on one credit card, but sticking to your debt reduction plan becomes much more difficult if you try to pay off several at once. Thankfully, you don’t have to increase the monthly payment amount on all of them. Instead, focus your attention on the one with the highest interest rate. This is the card you want to pay off the soonest. It’ll save you money in the long run, and your debt reduction strategy will feel much more manageable. Once you have it paid off, move on to the next card with the highest interest rate. Always make your monthly minimum payments on all other cards.
Focus on Promotional Offers
In addition to making a higher payment on the card with the highest interest rate, try to eliminate debt for any cards tied to promotional offers. For example, if you have been making $150 payments on the card with the highest interest rate, but you have a $200 debt on another card that is tied to a zero percent interest rate for six months, and the promotional period is ending in two months. This means for the next two months, you need to focus on repaying the debt tied to the promotional offer in full. During those two months, you can make the minimum payment on all other cards, even the one with the highest interest rate. This ensures you aren’t hit with a hefty interest charge on the card with the promotional offer. You can then shift to other debt reduction strategies and make larger payments on the card with the highest interest rate.
Ask for a Lower Interest Rate
Contact your creditors and ask for a lower interest rate. This is a crucial part of any debt reduction strategy, but it will take some effort on your part. If worst comes to worst, you can imply that you’ll close your account once you have paid off the loan or credit card. Many creditors will lower the interest rate just to keep you as a customer. This is especially true if you have a good relationship with the creditor and have made all payments on time. Lower interest rates will help you save money and ultimately eliminate debt in the long run.
Take Advantage of the Statute of Limitations
Did you know there are laws in place that forbid a creditor to collect a debt after a certain period of time? If you have debts that are seven to 10 years old, contact your state’s attorney general to learn about the statutes of limitations on credit card debt within your state. If some of your debts qualify, you can forego your payments without any type of financial or legal consequence. Your credit score won’t be impacted, and your debt reduction plan will become much more streamlined.