No Credit Needed Debt Reduction Guide
Section Two: Moving Beyond The Basics
Reduce Monthly Interest Charges:
- Send minimum payments and extra payments as early in the payment cycle as you possibly can. This reduces your average daily balance which reduces the amount of interest charged.
Transfer Balances Carefully:
Consider transferring debt from one creditor to another, but be smart. If you move credit card debt from one card to another, understand the terms of the balance transfer. Many cards charge a balance transfer fee. Do the math. Calculate the amount of interest you will pay if you keep debt on your current card, the amount of interest you will pay, plus the balance transfer fee, if you move debt to a new card. Also, keep in mind that most cards offer low rates for a limited time, only. Refer to your debt reduction plan, created in Section One: Getting Started. Will you be able to completely pay off the transferred balance, before the low rate goes away? If not, be prepared to pay a much higher interest rate or complete another balance transfer.
Using equity in your house to ‘pay off’ debt can be dangerous – and must be accompanied by radical behavioral change. I would never suggest using a home equity loan or line of credit to pay off unsecured credit card debt.
Make Multiple Extra Payments:
As you work your way through the month, consider sending more than one extra payment to the account on the top of your list. If you receive unexpected income or a gift of cash, use it to reduce your debt. By using micro-payments, you can reduce your debts even more rapidly than your initial debt reduction plan might suggest. Also, if you underspend in a particular budget category, use this ‘found money’ to reduce your debt. Look for ideas, every day, to save money that can then be used for debt reduction.
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Section Two: Moving Beyond The Basics
Section Three: Preparing For Freedom
Let me second your advice to call the companies to reduce your interest. I just posted about my successful phone call. Over a year, I’ll save over $1,000 in interest from that five-minute phone call!
Great series! I think the Multiple Extra Payments part is the most fun! It’s like playing a game that puts you back in control of the debt.
I like the part about micro-payments. This strategy is often over looked…
It is little confusing! Sow wrote on 04/30/08: “Cut a check to yourself”, “Deposit it into your Bank Account”!!!? where that check will be taken from? from Saving? from another account? from your friend? From your spouse? can any body explain please? I’m sorry I’m a little slow!!!
Amal,
I’d just ignore that advice. It’s clearly comment spam. I’m deleting it.
NCN
My kids just got out of school for the summer, so I set up a weekly recurring payment to my credit card company in the amount that I would have spent on school lunches. Every little bit helps, I figure.