Creating A Debt Reduction Plan

Reducing your debt can be a stressful and worrisome action to embark on. If you’re being plagued by increasing debt and have finally decided to deal with the problem, you’re probably wondering where to start. Before you start panicking, here are a couple of debt reduction goals that might help you as you try to decrease your debt:

Create a Plan

One of the best debt reduction goals you can have is to create a plan for reducing your debt. It’s easy to talk about wanting to reduce debt, and even easier to believe that reducing your debt won’t be too difficult. But if you have a lot of debt, you’ll quickly find yourself overwhelmed. Creating a plan will help you stay focused and know when you need to make payments and how you need to go about changing your finances.

Sticking to Your Plan

Of course, the second best debt reduction goal is promising to stick to the plan you create. A plan will not only allow you to keep on track with your debt reduction, but it will help you trace your progress. Forcing yourself to stick to a plan is one goal that will definitely benefit you in the long run.

Eliminating Excess Spending

Another great goal to try and stick with is eliminating excess spending. Excess spending can be anything from buying that daily coffee to canceling your cable television. While this might be difficult to do at first, reducing any excess spending can drastically help you reduce your debt. Without wasting money on items you don’t truly need, you can instead use that money to pay down your debt.

Determining How Much to Pay Each Month

If you’re swimming in debt, it might be difficult to figure out how much to pay each month. Consolidating all of your debt may make this step a bit easier. You may have a set minimum to pay each month when your statement comes in the mail, but you should set your own goal. After reviewing your finances and figuring out what is feasible, decide whether to only pay the minimum amount or whether you can afford to pay more each month.

Stop Impulse Buying

Impulse buying is one of the worst habits you can have if you’re in debt. In fact, impulse buying might be what has contributed to some of your debt! If you’re seriously about decreasing your debt, you need to curb your impulse buying habits.

Create a Budget

Creating a budget is a surefire way to help decrease your debt. Being on a budget doesn’t mean reducing yourself to living on practically nothing. Many people hear the word “budget” and immediately think the worst. However, creating a budget just entails careful monitoring of how much money you spend and what you spend it on. It may mean only allowing yourself on coffee a week or one “fun item” a month. It may also mean reducing how much you spend on groceries each month or how often you buy new clothing.

Stop Creating More Debt

One of the best goals to adopt when reducing debt is to stop creating more debt. Naturally, more debt will only make your current debt worse. Not creating more debt may mean not taking out a mortgage to buy a new home or taking out a loan to buy a new car. Instead, focus on paying down the debt you already have instead of adding to it. The more debt you add, the longer it will take you to pay it all off.

Track Your Spending

Tracking your spending habits is another great goal to adopt for your debt reduction plan. Tracking your spending may help you realize how much money you spend on certain items, utilities, or activities. Some people are entirely unaware of their spending habits and shocked to learn how much money they waste when they look at an expense grid or credit card statement. Tracking your spending will not only help you reassess your spending habits, but it will help you manage how and when you pay down your debt.

Pay in Cash

A lot of people prefer paying for their purchases with a debit or credit card. However, some people also find that they’re more likely to spend money when they swipe a card. To keep a handle on your spending habits, try only paying for items in cash. The amount of cash you carry will limit how much you can spend at a given time. Keep all your credit or debit cards for emergency, however.

Pay Off the Highest Interest Rates First

If you have multiple forms of debt, the best plan of attack is to pay down the one with the highest interest rate before you attack the others. If you want to pay all your debt down at the same time, put a little more money towards the debt with the highest interest rate.

Photo: Flickr: Simon Cunningham