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8 Ideas to Help Reduce Your Debt

8 Ideas to Help Reduce Your Debt
by Richard Barrington

You don't have to be overwhelmed by debt. When it feels like your creditors have you cornered, avoiding the issue just causes more anxiety. So pull out all those unopened bills and list how much you owe and to whom you owe it. Then, try these debt relief strategies and put your problems behind you.

In the short term, these debt relief options can help bring peace of mind. In the long run, they can have even more tangible benefits, such as improving your credit score, reducing high payments by lowering your interest rates, and possibly helping you avoid bankruptcy.

Here then are eight debt relief options you should consider:

1. Eliminate high-interest credit cards. Even before you figure out how to pay off your credit card debt, identify which cards have the highest interest rates and cut them up. The first step is making sure you shut off the most expensive sources of debt.

2. Prioritize secured debts. Unsecured debts are those not backed by collateral, while secured debts have a particular piece of property associated with them. It's not that unsecured debts aren't important, but if there is property you don't want to lose, make sure you keep up with those payments first.

3. Consolidate debts. Use low interest sources of debt to pay off high interest rate debt. This will both save you money and simplify your finances. If you have equity in your home, you can generally get a lower interest rate by paying off credit card debt with a home equity loan or a cash-out refinance. Remember though, any mortgage is secured debt, so make sure these are payments you can keep up with.

4. Have a credit score strategy.Your credit score is the key to future borrowing -- whether you will be able to, and what interest rate you will pay. Understand any black marks on your credit report, and what it will take to eliminate them. This generally involves the passage of time, but having a strategy to improve your credit score will help you avoid unnecessarily high payments in the future. And good behavior is rewarded fairly soon -- your most recent credit history is weighted most heavily by credit agencies.

5. Negotiate with current creditors. They may seem like the adversary, but remember, these people want you to be able to make your payments. Don't expect them to write off what you owe -- and in any event, this can damage your credit score -- but you'll often find they have some discretion in terms of lowering interest rates and/or lengthening the payment terms.

6. Budget to succeed. Once you have taken the above steps to reduce payments as much as possible, formulate a monthly budget that puts you on track to pay off your debts.

7. Consider credit counseling. If you cannot come up with a monthly budget that works, consider outside debt help like credit counseling. Getting reputable outside debt help can help you uncover additional debt relief options.

8. Consider debt settlement to avoid bankruptcy. A debt settlement plan is like an informal bankruptcy. It entails having a debt settlement specialist negotiate with creditors to write off as much debt as possible, and then structure payment terms for the remainder. A debt settlement plan should be a last resort, because it is likely to damage your credit score, but it may be worth doing if it allows you to avoid bankruptcy.

About the Author:
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.
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