Debt Reduction

The current economic climate means that mounting debts are a reality for a large number of people. As a result, ever more people are looking into methods of debt reduction in order to plan for their financial future. Rising interest rates and reduced availability of affordable credit lead to situations where the interest on even small debts rises to such a level that the repayments become unaffordable.

Before investigating debt reduction methods, it is worth investing a small amount of time to accurately calculate your true financial position. It is a fact that most people underestimate their true level of debt by between 15 and 20%. There are a number of ways of calculating your financial position, from using pen and paper, spreadsheet software, or even purchasing a home finance software package. Off-the-shelf, most home finance software packages will provide the facility to calculate repayment schedules and create a ‘debt free date’. Similar functionality can be achieved using spreadsheet software, although it would take some in-depth knowledge of the software used.
 
Often, the best source of help is a professional debt advisor. While a professional may charge a modest fee, you are paying for their experience and advice on debt reduction, and in the long run could end up better off. Before selecting a debt advisor, you should do some research, obtaining information from the internet and, where possible, references from former clients. You should also ensure that you can actually afford the debt advice as you do not want to worsen the situation further.

The first step to debt reduction is to determine your income and expenditure and curb excessive spending. You need to identify your wants and needs, purchasing only those things that you need, not those that you don’t. Cutting back on luxuries can go a long way to solving debt problems. Many debtors have multiple loans; if your circumstances are suitable, a consolidation loan may be the best option in order to reduce your total monthly repayment, although you may find the repayment period longer than on individual debts.

With a proper frame of mind and some self-restraint, you can eliminate your debts quickly and easily. Realising that you need to reduce your debts, the so-called ‘lightbulb moment’, is the start of the road to a debt free future.