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

FAQs

What are the 5 steps of staying out of debt? ›

Know whom you owe and how much: The first step should always be about awareness. When you start out on your journey of debt management, you should start with studying the different types of debt that can appear on your balance sheet.

Hold Debt Service Payments At Less Than 25% to 33% of Gross Income. Use Credit Cards Only As A Convenience. Protect Your Credit. Pay Cash For Purchases. Review Debts Annually.

In terms of saving money, a debt avalanche is better because it saves you money in interest by targeting your highest interest debt first. However, some people find the debt snowball method better because it can be more motivating to see a smaller debt paid off more quickly.

Consider the snowball method of paying off debt.

This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off.

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 do you manage and avoid debt? ›

You can refinance mortgages, auto loans, personal loans and student loans. One way to do this is through a debt consolidation loan, a personal loan that may come with lower interest rates than your existing debts. You may also consider transferring the debt to a balance transfer card if you have credit card debt.

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. You can also find extra money in your monthly budget by reducing your discretionary spending.