Many people feel weighed down by knowing that they are in debt. Owing money can create anxiety and reduce your quality of life. Although it may not be possible to get rid of your debt immediately, there are many ways to reduce it. Just keep in mind that ignoring your debt is not going to make it go away. So take control of your life by looking your finances squarely in the face. Here are some strategies you may want to adopt:
Highest Interest Rate Method to Reduce Debt
Many financial experts recommend this method in which you focus on the debt with the highest interest rate first and pay it off as quickly as you can while just making minimum payments on the rest of your debts. When you're finished with that one, start making payments on the debt with the second-highest interest rate, and so on. This will prevent you from paying too much interest in the long run.
Snowball Method
In this method, you pay the minimum amount on all your debts but more payments on the smallest one. Once you've finished paying that off, move on to the second-smallest one, and so on. This method can be encouraging because you'll see results right away. In fact, it won't take you that long to reduce debt. Finally, you'll just be left with the big ones which you can keep chipping off little by little.
Debt Consolidation
In this method, you work with a company that will consolidate all your debts so that you just have to make one monthly payment. This can make your debt seem a lot more manageable. And the payment you make will likely be smaller than what you were paying before. However, you might end up paying your debts off for longer which will prevent any large expenses during that time.
Sell Your Valuables to Reduce Debt
Do you own anything valuable that you could get a lot of money for? This might include jewelry, designer clothes, rare books, artwork, a fancy car, etc. If you suspect that you own something of value, such as an antique, why not get it evaluated and use the money you get from it to pay off some of your debts?
Use Your IRA
Did you open an individual retirement account with your employer and do you have money going to it from every paycheck? In that case, you might have quite a bit of money saved up for retirement which you can use to pay off your debt instead. Just keep in mind that you usually have to pay about 10% of the amount you withdraw in taxes. Plus, of course, this will impact your retirement plans. However, it is a valid option and it makes sense to use this money that you have to reduce debt.
Use Your Life Insurance
If you have a life insurance policy that you have been paying premiums to for several years, you might be able to cash it out or borrow against it. Like using your IRA, this option comes with some penalties. So it makes sense to figure out what those penalties are before you go ahead.
Freeze Your Credit to Reduce Debt
Are you one of those people who applies for new credit cards on impulse and regrets it later? You can prevent yourself from doing this by freezing your credit. This means that when you attempt to apply for a new credit card and they do a credit inquiry, they won't get any results. Of course, you can always unfreeze your credit later, but freezing it now will make sure you don't give in to that impulse.