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February 2013
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Strategies to Pay Down Debt

Debt can be a difficult animal to tame but if you approach debt repayment with a plan and stay the course, you will be able to pay down
debt and it will be easier than you think. Use these strategies to help pay down debt sooner.

Borrow at a Lower Rate

Much like refinancing your mortgage at a lower rate, you can refinance your personal loans, credit card loans, auto loans and any other kind
of loan to a lower rate. Whenever the interest rate comes down, look at opportunities to refinance your loan and reduce your interest expenses. If you maintain your payment level after refinancing at a lower rate, you will be able to pay down debt much sooner. Make use of 0% APR loan offers you get in mail and transfer some of your balance to these offers. This will reduce the interest burden on you temporarily.

Stop eating out

How much do you spend on lunch and dinner. Let’s say if you work for 230 days in a year and eat your lunch outside. If you spend anywhere from $5 -$10 per meal, you are going to be out anywhere from $1150 – $2300! Wow and that just for one person and not taking in to account dinner. Start cooking at food and leave eating out to occasional events. You will do your wallet a favor and your health too.

Make it a challenge

Games motivate people. If you can make paying down a challenge, the player in you will rise to the occasion. Give yourself a reward after achieving milestone in the debt elimination process. These gifts don’t have to cost too much; just make sure its something you value personally and it will keep you motivated to reach the next milestone.

Don’t spend all of your income

Where will the money to pay back debt come from? From your income! So make it a point to spend less than what you are earning. Even if you have to make some difficult choices, do it. Once debt free you will have spending opportunities which you can truly enjoy.

Use up your gift card:  If you have gift cards lying around, make sure to use them. It is cash sitting around that is not working for you. If you have no use for the gift cards, sell them on eBay or plastic jungle and use the money to pay down debt.

Sell old items

Are you collecting items that you are not using? Do you have a wardrobe which is full of clothes you no longer wear? Get rid of these old items. You can donate them to charity and get a receipt and take a tax credit (please consult with your tax advisor for more details) or you can sell them via a garage sale. This will help you collect some money from things you were not using.

Divert any salary increases or bonuses to paying down debt

Odds are you have developed a way to manage your expenses in your current salary, so any increase in salary or bonuses can go towards paying debt down.

Borrow from your retirement account

This one is tricky and you should only consider this after you understand all the rules and regulation concerning the type of retirement account. Many 401K account providers let you borrow from your own retirement account and pay an interest. Often the interest rate is lower than what you can expect on a personal loan and you are paying interest to yourself rather than someone else. This can be risky as one of the general rules for such accounts is to have all the money back in the account within 30-60 if you leave the job or get laid off.

Make a budget

Paying debt down without a plan can be difficult and a budget is a financial plan. Use a budgeting template that will help you make a budget quickly and try to stick to the plan you created. You can make steady progress by making sure you allocate your cash flow properly to paying debt and to your current expenses.

Stop building more debt

If you are trying to pay down debt, stop adding to it. This would mean not buying anything on your credit card that you cannot pay for in full, not buying a car on loan. If you have a set target, a fixed amount of debt, you can make a plan and work towards paying it down. If you keep on adding to the debt it will become a cat and mouse game.

Stop listening to ads

Marketing is a very powerful tool that create wants and needs that actually never exists in the first place. If you fall prey to marketing gimmicks,
then stop seeing ads on TV (change the channel or put TV on mute), don’t read ad in print and on internet. You will save money by not getting lured in to making frivolous purchases.

Do you have any tips to pay down debt? Have personal debt payback story? Are you trying to payback debt? Join the conversation in the comments section.

Author Bio: Rohit is the founder of http://TheMoneyMail.com. After working in the financial industry for five years he started The Money Mail where he writes about various topics related retirement planning, earning more and managing you career.

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