Lower My Debt Tips
If you're serious about paying off your debt, then you must immediately cut your spending. You may also need to talk with your creditors, debt collectors, and credit or debt counselors. Follow these tips and lower your debt!
Find Small Daily Savings
Many common expenses are luxuries - for example, house cleaning, manicures, lawn-care services. Either do these things yourself, or do without them. Have coffee at home or at work, rather than buying coffee on your morning commute, bringing lunch instead of spending several dollars a day eating lunch out, not ordering expensive drinks at restaurants, or better yet, going out less - these are simple things you can change that will make a big difference in monthly expenses. Other items like premium cable, cell phone service with all the extras, new CDs or buying online music, and many other items like these are luxuries we may want but don't need. Often you can choose less expensive cable packages or cell phone services with no penalty for changing. Creating a budget and sticking to it, plus contacting your creditors if you have problems making payments are additional steps for dealing with your debt. It is also vitally important not to take on new debt until you get your existing finances under control.
Save on the Credit Card Interest You Are Paying
Your debt will be reduced more quickly when less of your money goes to paying interest on your credit card debt and instead goes toward paying off the actual debt. By lowering your interest rate by even a few percentage points you are able to set aside more toward paying off your debt each month.
Here are a couple of suggestions to minimize the amount of money that goes to interest and maximize the amount that goes toward paying off your debt.
- Ask each of your credit card lenders for a lower rate. Call each lender's customer service department and tell the representative that you are shopping around for better terms. If you have received a pre-approved offer for a credit card with a lower rate and you're considering switching, let them know about this offer and ask if they can meet it. With today's competitive credit card market, you may find that this tactic can lower your rate by at least a couple of percentage points, and usually more.
- To minimize the amount of interest you're paying, prioritize by interest rate. Concentrate first on paying off the debts that carry the highest interest rates. Remember to keep all your other accounts current by paying at least the monthly minimum due on each one, which will eliminate late fees and additional negative entries on your credit report.
Contact Other Creditors You May Have
If you are experiencing problems making your monthly payments, contact your creditors. Explain to them the problems you're having, and try to work out a modified payment plan that would reduce your payments to a manageable level. If you agree to a modified payment plan, be sure you pay what you agreed to each month, or the creditor could return to requiring higher payments.
Dealing With Debt Collectors
Many creditors will turn your account over to a debt collector if your account goes unpaid for a certain amount of time. If your finances are tight, and you can't pay the full monthly payment, debt collectors, like original creditors, will often agree to modified payment terms.
If a creditor has asked a debt collector to collect on your debt, you should know that Federal law regulates how and when a debt collector may contact you. The Fair Debt Collection Practices Act prohibits debt collectors to call you before 8 a.m. or after 9 p.m. If the collector knows your employer does not approve of your receiving personal calls, they are forbidden to contact you at work. A debt collector cannot harass or lie to you or use other unfair practices in attempting to collect a debt. The law also requires debt collectors to honor a written request from you to stop further contact, but be aware that this does not prevent a collector from pursuing court or other actions to collect a legally owed debt.
If a debt is over a certain number of years old (outside of the statute of limitations), you may not have to pay it. The statute varies by state. There are some debts, such as government student loans that can be collected no matter of how old they are. More information on your rights under the Fair Debt Collection Practices Act can be found on the Federal Trade Commission Web site.
Debt Consolidation Loans
Debt consolidation means combining all your debts into a single loan at a lower rate, and can be done in a number of ways.
Credit unions are one of the best sources of lower interest debt consolidation loans. If you do not belong to a credit union, other options, including banks, are available. Explore debt consolidation loan options on your own or through a credit counselor.
Beware of unscrupulous lenders, who often operate under names such as "debt consolidation specialists", offering fast approvals and easy terms. They could, and often do, lead you deeper into debt. Before signing any debt consolidation loan, with the Better Business Bureau for information on the lender.
Home Equity Loans
Another way to consolidate your debt is by tapping into the equity in your home. With a second mortgage or home equity loan, both the interest rate and monthly payment will likely be considerably lower than the payments on your current debts. In many cases, the interest will be tax-deductible, freeing up even more money to pay your other debts.
Be aware that taking out a home equity loan or second mortgage can put your home at risk. If you do not handle these types of loans responsibly, you could lose your home.
If you decide to get a home equity loan, make sure you are working with a reputable lender, as there are many unscrupulous home equity and second mortgage "specialists" doing business in this market. If you're planning to remain in your home for years and already have a low interest rate locked in, be wary of a promise of lower payments by converting to an adjustable rate mortgage. That might mean lower short-term payments, but could turn into significantly higher payments if interest rates go up.
Also be cautious of prepayment penalties on loans, and/or loans that have balloon payments, unless you understand them and are completely comfortable with following these terms. Check the lender out with the Better Business Bureau before entering into any agreement that could cost you your home.
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