7 steps to more effectively manage and reduce your debt (2024)

FAQs

How to manage and reduce debt? ›

To stay out of debt, make a repayment plan in your budget. Pay the balance in full each month. Only make charges when you can pay off the entire credit card balance when it is due. This will avoid interest charges and save you money.

Pay off your most expensive loan first.

By paying it off first, you're reducing the overall amount of interest you pay and decreasing your overall debt. Then, continue paying down debts with the next highest interest rates to save on your overall cost.

This review process is based on a review of five key factors that predict the probability of a borrower defaulting on his debt. Called the five Cs of credit, they include capacity, capital, conditions, character, and collateral.

Make debt payments beyond the minimum.

Making more than your required minimum payment can help you pay off debts more quickly and save money in interest charges. Earmark unanticipated funds, such as your tax return or a bonus, for debt payments.

The 2/3/4 rule: According to this rule, applicants are limited to two new cards in a 30-day period, three new cards in a 12-month period and four new cards in a 24-month period. The six-month or one-year rule: Some issuers may only let borrowers open a new credit card account once every six months or once a year.

Character, capital, capacity, and collateral – purpose isn't tied entirely to any one of the four Cs of credit worthiness. If your business is lacking in one of the Cs, it doesn't mean it has a weak purpose, and vice versa.

How to get rid of $30k in credit card debt? ›

The minimum payment approach

If you only make the minimum payment each month, it will take about 460 months, or about 38 years, to pay off that $30,000 balance.

Invest in an accounting package that enables you to see at a glance who owes money, when it is due and whether they pay. Keep your accounts up to date and, if you can afford it, employ a credit controller to keep track of and chase up unpaid invoices. In any event, take prompt action to recover sums owing.

One way to do this involves using a lump sum – possibly received from a bonus or an inheritance – to pay off your inefficient debt. If you then borrow the same amount and invest it, you're essentially replacing the inefficient debt with a debt that is tax-deductable and could potentially generate wealth.