Steps to Creating a Debt Reduction Plan

A debt reduction plan is usually generated by debt settlement firms. They work with credit card issuers and collection agencies so that they can help reduce your debt balance. This does not mean that you cannot do this by yourself, however. As a matter of fact, you can create your own debt reduction plan if you are not ready to get outside help from professionals.

Here are simple steps that you can follow to trim down your financial liabilities and eventually get rid of debt:

Step 1

Before you begin creating your debt reduction program, make sure that your bills, your bank statements, your paycheck records, and your budget plan are with you.

Step 2

Know how much you really owe. Do not rely on your memory or even make an estimate about your debt. Calculate how much you need to pay each month. You also have to examine the interest, penalties, and other fees that you are currently facing.

Step 3

If you do not have a budget yet, this is the time that you create one. Your financial plan should include your household budget which covers your income and all outgoing cash. You can only reduce debt if you know how much money you have in your wallet or savings account. To do this, you need to subtract all your expenses from your remaining cash. The higher the number, the better your situation is.

Step 4

Find out the magnitude of your problem. Taking into account the number you got in step 3, you will know whether you can easily get out of your debt or not. If you have enough money, it is time to repay your bills.

Step 5

Look at your bills and determine which debt has the highest interest rate. This is the credit card or the loan that you will need to pay first. This is important since the longer you prolong the repayment, the higher the debt becomes due to the interest rate.

In some cases particularly when you do not have enough money for the time being, choose the account that has the lowest balance. Some people need motivation to keep going with their debt repayment. If you pay off the account with the lowest balance, you will quickly see that you are progressing towards your goal.

Step 6

Quit spending too much. You are in financial crisis and it makes no sense to keep on spending more cash. Aside from that, you may want to take a look into your items. If there are products that you no longer use, you can put them up for sale online or at a yard sale. You can also look for coupons and discount vouchers. These small things can actually help you a lot especially on your everyday purchases.

Step 7

Consider debt consolidation procedures. There are some ways that you can perform yourself without the help of experts. These include applying for a new credit card that offers balance transfers. Make sure the balance transfer rate is zero percent and has a long introductory period. This will be useful if you have many debts to cover. Bear in mind that the purpose of the card is to reduce the interest rates of your previous accounts. Therefore, it is not advised that you use it for purchases.