Do you have a debt reduction strategy? Most people will just focus on having a repayment plan to help them meet all their monthly dues. But if you really want to make the most out of your debt relief program, you have to aim for debt reduction.
What does that mean?
It means you’re going to find a way to pay the least amount on your balance. So if you’re like the average American who owes $90,460 in debt, you’ll be paying less than that amount.
You may be wondering – is that really possible? Yes, it is! And it’s perfectly legal to ask for a debt reduction. If you can make this happen, you’ll be saving a lot of money in the process. Not only that, you’ll end up paying off your debts a lot faster. After all, the amount you’ll pay will only be a portion of what you really owe. Once you’re rid of all your debt payments, you can now focus on your other financial goals – or other plans that’ll help improve your financial situation.
Of course, you can’t just tell your creditors and lenders that you’ll only pay a certain amount. You have to remember that the less you pay, the less profit they’ll get from your debt. So you can expect that they won’t be too accommodating when you ask them to reduce the debt you owe.
This is the reason why you need a fail-proof debt reduction strategy.
How to start your debt reduction strategy
Having a clear strategy when it comes to your debts is a great way to stop feeling stressed about your debts. According to reports, more than 7 out of 10 Americans feel anxious about their financial situation. It’s safe to assume that debt is a major contributor to the stress that they are feeling. So if you want to make it easier to get out of debt, you should aim to reduce your balance.
To increase the chances of you doing that, you might want to create a debt reduction strategy. Here are some tips that’ll help you get started on that.
Stop using credit
Before you can even talk to your creditors and lenders about your debts, there’s one thing you can do to help reduce what you owe.
Stop using credit. It’s only temporary. You can’t really eliminate debt completely from your life because you still need a high credit score. To do that, you need to continue using debt. But that doesn’t mean you can’t stop using it temporarily. Especially while you are in the midst of a debt relief program. Until you’ve completely paid off your debts, don’t add to it. That way, you can really see your debt balance going down. The progress will make you feel motivated enough to make sure that you can achieve complete debt freedom.
Increase your monthly payments
This is a more proactive debt reduction strategy compared to the first one. If you can increase your monthly payments, your debt balance will go down faster. You’ll a bigger debt reduction every month.
There are two ways to do this.
You can start by looking at all your expenses. See if there are expenses that you can stop funding. Like instead of going to the gym and paying for an expensive membership, you can exercise at home. Just buy a set of weights, go on Youtube, and follow videos of fitness experts. Or instead of spending your lunch money, you can just brown bag the leftovers from the previous night and save money.
Another way to increase your debt payments is to earn more money. Find a side gig that you can do during your free time. Or you can set up a passive source of income. If there’s an extra room in your house, you can fix that up and have someone rent it out.
The extra money that you get can be used to increase the monthly debt payments that’ll eventually reduce your debts.
Negotiate with creditors
This debt reduction strategy is a bit more complicated. But if you can do it correctly, you can have your debts reduced by a huge percentage. Of course, to negotiate debts on your own, you have to understand what you’re trying to do. There’s a technique that’ll make creditors and lenders agree to what you’re proposing.
Obviously, you have to offer them something in return. For instance, let’s say you just lost your job. Call the credit card company that you owe money to. Tell them that you can only afford to pay a certain amount – any higher than that and you’ll be pushed into bankruptcy. These credit card companies know that in bankruptcy, credit card debts are usually the ones discharged at first. So there’s a chance that they’ll agree to accept your payment – even if it’s a lot smaller than what your actual balance is.
Get assistance from a debt expert
If you think you can’t negotiate yourself because you don’t have the time or you don’t know how to do it, get an expert to help you. You’ll probably have to pay them for the service but as long as you find the right expert to do the job, you’ll find that this is an effective debt reduction strategy.
They can use their expertise and experience to negotiate the best repayment plan for you. And if you get a debt expert who’s been in the industry for a long time, they probably have a good working relationship with some creditors already. At the very least, they have familiarity in terms of working with these types of professionals. They’ll know how to navigate the conversation so it all works in your favor.
Reasons to have a debt reduction strategy
It seems pretty obvious why one would want to use a debt reduction strategy. Who doesn’t want to pay less than what they really owe? But if you really want clear reasons why you need to reduce your debts, here are two that might help motivate you.
To pay off debt fast
The lower the balance, the faster you can pay it off. That’s the general rule. So if you can reduce your debts, it only follows that you can get rid of them faster.
What happens if you can get rid of them faster? You can now use your limited resources to reach your other financial goals. You can start saving up for the downpayment of your own home. Or you can use your extra money to go on a vacation and recharge. Maybe you can use it as capital to start your own business. There are many goals that you can reach as soon as you have paid off your debts. So the faster you can do it, the better it will be for your future.
To make debt payments affordable
Another reason to get a debt reduction strategy is to make your debt payments more affordable. Even if you’re not in a hurry to pay off your debts, you’ll still benefit from it. You can stretch your lower balance so you end up with a lower monthly payment. This will make it easier to meet and pay for each month.
But that’s not all. With a lower monthly payment, you can afford to finance other goals at the same time. Like if you need to boost your emergency fund, you can now afford to save while paying off your debts at the same time. This will help you get started on your other financial goals so you can enjoy multiple wins at the same time.
Both of these reasons will not just make it easier to meet payments and build a more secure financial future. It’ll also help you achieve complete debt freedom.