How to Reduce and Consolidate Debt
- 1). Create a family budget. List all of your monthly expenditures and income. Find ways to reduce your spending and increase your income. This will create extra money that will be used toward debt reduction. Contact service providers, such as cable, Internet and cell phone carriers, to see if you can reduce services or if they can reduce your monthly bill to keep your business.
- 2). Start a savings account and save two to six months living expenses in it. This will be used in the event of an emergency. Instead of using debt to fund an unexpected and unbudgeted expense, use the savings fund. Remember to replenish the fund when it is used before paying back debt.
- 3). Make a list of all outstanding debts. Include the debtor, the total owed and the monthly payment.
- 4). Attempt to consolidate all debts. If you are a homeowner, research getting a home equity line of credit or a cash-out mortgage to pay off the smaller debts and get a lower monthly payment. If not, consult your bank about getting a debt consolidation loan or using your credit card balance transfers to consolidate all debts into one or two monthly payments.
- 5). Begin to pay down your debt by using the extra money created in your budget. If you have more than one payment, attack the smallest payment first. Pay as much extra per month as possible, without incurring further debt. Once the smallest debt is paid in full, pay down the next smallest, adding the money that would have been earmarked for the debt now paid off. Continue the pattern until all debts are paid.
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