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When applying for a loan you do want to be
mindful of your debt-to-income ratio. Lenders will look at this
carefully when considering you for a loan. Debt can be anything
from credit card payments to standing monthly obligations, educational
expenses, and loan payments. Food bills, household costs or utilities
are not debt. Lenders view it as favorable if you use no more than
43% of your income to pay down debt each month.
Here are some tips to reduce your debt quickly:
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Stop Using Credit Cards.
As tempting as it may be, take those credit cards out of your
wallet and put them away. Start to use cash to pay for everything
so you can pay down those balances. Next you will want to close
some of your credit card accounts, keeping only one or two for
emergency purposes only.
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Focus On One Credit Card at a
Time.
Focus on paying off one credit card at a time, and then work
your way through them. You will feel a great sense of accomplishment
once you have achieved paying one of them off. Start with paying
off the higher interest credit card first.
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Pay More Than Your Credit Card’s
Minimum Monthly Requirement.
If you are making only minimum payments toward your credit card
balances, you are still accruing interest charges. In the long
run, you will pay at least three times the amount of your original
purchase.
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Cut Back The Use Of Your ATM Card.
ATM withdrawals and Debit card purchases are almost as commonplace
today as using credit cards. ATM machines that are not located
at your bank may charge service fees of up to $4.00. This can
leave you with a lot of “missing” money at the end
of the month.
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Spend Realistically.
Make a list of what you spend on bills each month and find areas
that you can cut back. Do you really need 1,000 cable or satellite
channels? Can you survive with basic cable or even regular local
programming? Do you need several magazine subscriptions and
two newspapers per day, or can you cut back? Instead of seeing
several movies at the theater each month, can you rent them
from your local video store?
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Get a Second Job.
If you are willing, take on a second job to earn more money
and pay down your debts. Lenders like to see that you are taking
on an active role in your financial status.
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Consider Debt-Management Counseling.
If you are way over your head and don’t know where to
begin, consider seeing a debt-management counselor. He or she
can help you negotiate with creditors and work out a more practical
spending plan. Most of these services are either free or are
available for a nominal fee.
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