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How to Reduce Your Debt Without a Loan

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Dan Steadman

Financial Advisor, DCL

How to Reduce Your Debt Without a Loan

Let’s be honest, consolidating your debt without a loan is not going to be easy, although even with a loan, it still may not be as easy as it sounds. Debt consolidation or reduction loans can come with high fees and interest rates, particularly if you don’t have a great credit score. If you are dedicated to reducing your debt without a consolidation loan and sticking to a budget, then you can succeed in paying off your debts on your own.

Evaluate Your Debts and Expenses

Document Your Debts

There are people who have succeeding in paying off their debts without a loan or any other financial assistance. The first step is to evaluate your debts and your expenses. You will want to rank your debts – those with the highest interest rates should be paid off first. Write down the total amount you owe to each creditor, and what the monthly payments are. In addition, you should check your credit score to see what is on your credit report and the status of your credit.

For each debt you have, note the balance, interest rate and monthly payment amount. Include every single debt you have: auto loans, credit cards, student loans, mortgage, personal loans, or any other debt you may owe. Be sure to include annual fees or any other additional costs associated with your debts. In most cases, you should focus on debt other than student loans and your mortgage. These tend to be long-term loans that have relatively low interest rates, so you will get more benefit from focusing on debt with high interest rates.

Evaluate Your Expenses

Make a list of your monthly expenses other than the debts you have already listed.  This would include utilities, phone, food, gas, car insurance, and any other expenses you pay.  If you have quarterly or bi-annual payments for some bills, break them down into monthly installments when you list the expenses. Be sure to include expenses such as child care, restaurants, entertainment, and unexpected events such as car repair, or a broken appliance. You should estimate an amount for these miscellaneous charges.

After listing all your monthly expenses, look at your income and write down the amount you actually take home on a monthly basis. Compare your income to your expenses and subtract the two to see how much money you have left that you could use to pay down your debt. For many Americans, there is not much money left after subtracting every expense.

Take a close look at your expenses and take some time to think about how you can reduce them so you can put more money toward paying off high interest credit cards or similar debts. If you can reduce or eliminate just one credit card account, you will be saving money on interest as well. There are some simple cuts you can make that can make a big difference in reducing your expenses so you have more money to pay toward your debts.

Develop a Budget

Go down the list of expenses and note the lines that you can reduce. For example, right now you can’t reduce your monthly credit card payment, so don’t mark that one. You can reduce your grocery bill, so highlight that one, and so on and so forth. Think about ways to reduce each expense, but be reasonable with your estimates as well. Once you have gone through the entire list, make a note of the ways you can reduce each item.

For example, you can cut your food and grocery expenses in many ways. Clipping coupons and planning your meals based on store sales and buying generic or off-brand products can all contribute to cutting down your grocery bill.  You can eliminate going to restaurants, or reduce the number of times you eat out, depending on your situation. Keep in mind, the more you cut, the more you can put toward your debt, the faster you will have it paid off. Instead of buying bottled water, you can skip that and get a small filtered pitcher or sink attachment so you can re-use the same water bottle.

The cuts you make to your expenses depend on your specific situation. Perhaps you can reduce your gas expenses by carpooling, biking or walking to work or other places. You may want to eliminate your cable or entertainment expenses as well, or reduce them significantly. It is up to you to determine where to make the cuts and how much you can realistically reduce your expenses.

Living on a Budget

While you are cutting back on your expenses, you are putting all your extra money toward your debt.  After a month or two, it may feel like you are limiting your quality of life for nothing, but in fact, you are on the path toward financial freedom. You should be tracking the amount you are putting toward your debt, so look at it occasionally to remind yourself of why you are making these sacrifices, and think about how good it will feel to be free of debt.

As you continue to put money toward the debt with the highest interest rate, you may be tempted to fall back into your normal spending routine, but you should try to avoid this. It is extremely easy to fall back into a pattern of over-spending and using credit cards for extra expenses. You may want to cut up all or most of your credit cards so you are not tempted to use them. Reducing your debt will only work if you stop accumulating more debt.

Once you pay off your first debt, continue down the line of the high interest debts and begin paying the next one off. If you haven’t done so already, you may want to consider increasing your income to reduce the time it will take to pay off your credit cards and other high interest debts. There are many reasonable options to consider when it comes to increasing your income.

Picking up a second job is not as taxing as it may sound. Many industries have part-time options and flexible schedules that allow you to work whenever and as frequent as you like. Even if you don’t own a car, you can still drive for companies like Uber or Lyft. They have car sharing and renting options available that are fairly simple to apply for. If that isn’t up your alley, you may want to look into online work such as Upwork or Clickworker for work you can do from home.

The options are limitless, so be creative and focus on areas you enjoy. You can offer babysitting or childcare services, lawn services, or maybe you are good with a hammer and can offer construction or handyman services. Whatever you choose, increasing your income is a great way to reducing and eliminating your debt. If you find something you enjoy and can stay with it over time, think of how much extra money you will have once you can use the money for something you enjoy!

Following Your Plan

Keeping an eye on your balance going down is a great way to stay motivated throughout this process. It is important to put as much effort as possible toward putting as much as you can toward your debt, but it is ok if the amount varies, or if there is one month you can’t afford to put as much toward your goal as usual. The ultimate goal is to stick to your budget and your payment plan as closely as possible. After you pay off that first credit card balance, don’t quit.  Keep going until you have all your credit cards or high interest debts completely eliminated.

Additional Options to Consider

There are some other options to consider that may help you reduce your debt without taking out a loan, although they may come with additional fees and stipulations, so it is always best to try on your own before you consider receiving assistance from a financial institution or a credit card. Before you consider these options, you should first contact your creditors on your own to see if they will negotiate your interest rate or your payoff amount.

Negotiate with Your Creditors

You have nothing to lose by contacting your creditors to negotiate the terms of your account. If you have been steadily paying down your debt, they may be willing to reduce your interest rate.  In some cases, you can negotiate a payoff amount lower than your current balance if you pay the balance off in a short time period. This can end up saving you hundreds or thousands of dollars in interest rate charges.

Balance Transfers

A balance transfer should be approached with caution, because you can end up paying the same amount you would have without the transfer, and sometimes more. Although many credit card companies offer 0% introductory periods, they also charge you a fee between 2 to 5% of the total amount you transfer. This is how you can end up paying more than your initial debt if you consolidate your credit cards into one with a balance transfer.

If you have a low credit score, chances are you can still be approved for a balance transfer, but you should only use this option if you have a relatively low balance, or you have a plan to repay all or most of the balance before the 0% introductory period has expired. It is also important to read the details of the balance transfer agreement. When the introductory period expires, you may be charged up to a 25% annual percentage rate (APR) or more, which could be higher than the interest rates you are currently being charged.

Borrow from Your Retirement or Life Insurance Fund

Only as a last resort should you consider borrowing from your retirement fund or from a life insurance policy. In both cases, you may be required to pay back the money you owe and if not, you probably should try to repay it so you have money for retirement and your dependents have the stability of your life insurance.

Many retirement plans allow you to borrow against your fund with a very low interest rate, but you do have to repay the loan. In most cases, they will withdraw payments from your paycheck, so you don’t have to worry about another monthly payment. If you borrow against your life insurance plan, you will want to repay the loan to ensure your family receives a benefit if you die.

You Can Do it on Your Own

There is no easy way to reduce or eliminate your debt, but it can be done. In fact, there are many success stories of people who were determined to pay off their debts so they could live free of debt and have the quality of life they want. If you evaluate your debt and expenses, develop a budget and stick to it, you can do the same thing.

Increasing your income is a great way to put extra money toward your debt and it will accelerate the pace at which you can eliminate your accounts. Don’t be afraid to contact your creditors to negotiate the best deal possible. You have nothing to lose, and you may be surprised at their willingness to compromise.

Cutting back on expenses can be difficult, but small cuts here and there can add up to a significant amount of money. If you cut back on expenses and increase your income, you will be debt-free in no time at all. After you pay off that first high-interest balance, keep going until you have all your credit cards and high interest debts eliminated.

Before exploring options such as balance transfers or borrowing from your retirement or life insurance fund, attempt to pay down your debt on your own. You may be surprised at how quickly your balances go down, and you will be saving yourself money on fees and interest rates that come with any loan or debt consolidation service.

Dan Steadman

Dan Steadman

Financial Advisor, DCL

Dan is one of the top financial experts when it comes to debt consolidation. With more than 20 years of experience helping people tackle debt, he has a unique insight when it comes to solving debt-related problems. 

Dan got his start when he went to work for a bank after getting his Business Degree. He worked his way up and became a loan officer. This position gave him unique insights into the ways that financial products work and how people can utilize different financial products to improve their lives. He’s seen hundreds of success stories and just as many failures – so he knows what steps are most likely to help his readers.

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