Three B.A.D. Ways to Reduce Debt

This guest post is from Ryan at Debt Reduction Forumla. He’s currently is reducing his debt from $75,000 to zero and letting you look over his shoulder. If you like what you see here, stop by his blog or you can subscribe to his feed here.

This is the first guest post Iâ€™ve written for Tricia. So I spent a few days thinking about a title that would get your attention.

Thatâ€™s when I came up with â€œB.A.D. Ways to Reduce Debt.â€

Of course, B.A.D. stands for Blogging Away Debt.

To write this post, I went back through a number of Triciaâ€™s blog posts to see what strategies she has personally used to reduce her debt during the last two years. Here are the three debt reduction strategies I came up with, along with how Iâ€™m using those same strategies.

Strategy #1: Create accountability.

When Tricia began her debt reduction journey, she started this blog to create accountability. I took a similar approach when I started writing Debt Reduction Formula. I did it, in part, for accountability.

But a blog is a lot of work, especially if you want to attract regular readers. Whatâ€™s a busy person to do?

At first, I simply created a spreadsheet that listed all of my debts, their interest rates, and minimum payments. This created personal accountability because I had to acknowledge my debt problem and see whether it was getting better or worse each month.

I continue to update that spreadsheet every month to see how much progress Iâ€™m making.

Even personal accountability like this goes a long way toward keeping yourself motivated. (And, trust me, you WILL need something to keep you motivated as you pay down your debt.)

Strategy #2: Minimize finance charges.

Another debt reduction strategy Tricia has used is minimizing her finance charges by looking for the lowest interest rates possible.

In one post, Tricia shares that she called around to credit card companies to get rate reductions, paid off as much debt as she could to improve her credit score, acted on balance transfer offers when she received them, and even took advantage of a Prosper loan at one point.

Weâ€™ve all heard about minimum payments. But, if youâ€™re like me, you may not have thought in terms of minimum finance charges. (I think I finally stumbled upon this concept a couple months ago.)

Letâ€™s say you have monthly minimum payments of $800. If you look at how much interest youâ€™re paying, you may discover that $600 of the total monthly minimum is going to interest!

By reducing finance charges, you free up more money to pay down principal, which accelerates your debt reduction.

Like Tricia, Iâ€™ve gotten reduced interest rates on a few credit cards. And I, too, recently got a Prosper loan to consolidate two loan balances. By doing this, I literally slashed my interest rate in half. (Iâ€™m now paying 11% instead of 22%.)

Strategy #3: Throw extra money at debt.

Perhaps this seems like a no-brainer.

But think about the â€œeconomic stimulus checkâ€ most folks will get this May/June. No doubt, some people will use it to pay off debt. But many people will spend it on a new widget or doodad.

A close friend and I were talking, and we speculated the number one purchase this economic stimulus money will be used for isâ€¦ a new flat-screen TV.

Not debt reduction.

Tricia writes that 100% of their 2005 tax return was used to reduce debt in 2006. And while itâ€™s easy to admire that kind of commitment, itâ€™s hard to put it into practice.

Currently, Iâ€™m also using extra money to pay down debt. Where does it come from?

Since Iâ€™m self-employed, I have periods of time when Iâ€™m cash-rich and other when Iâ€™m cash-poor. So whenever I get paid a project fee, I take whatever portion I can to pay down debt.

Iâ€™m actively pursuing different ways to grow my business so Iâ€™ll have more cash to throw at my debt. Not to mention, I recently received an unexpected inheritance, which Iâ€™m using to reduce debt as well.

So tell me: what B.A.D. ways to reduce debt have you personally used? Leave a comment below.

Thanks Ryan for the guest post!

Posted by Tricia on April 5, 2008 at 8:20 AM in Reducing Debt | 6 Comments »
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Stephanie @ PoorerThanYou responded:
Posted: April 5th, 2008 at 9:55 am
I definitely do all three! In fact, it was Tricia and “Blogging Away Debt” that inspired me to start my site. Also, a few months ago, I snapped up a 0% APR promo offer, and moved all of my credit card debt to it, and I’m paying it off as fast as I can to try and have it ALL paid off before the rate expires.

So thanks to Tricia for inspiring me to be B.A.D.!
Frugal Dad responded:
Posted: April 5th, 2008 at 2:39 pm
Great post, and as someone who followed Tricia’s story I appreciate the way you wove her story into yours. Now I’m off to discover your blog and follow your journey to debt freedom!
AJC @ 7million7years responded:
Posted: April 5th, 2008 at 3:15 pm
Nice guest post …

Hey Tricia, just noticed your Networth IQ badge; you are exactly where I started 7 (well, now 9) years ago … I can tell you that not only can there be light at the end of the tunnel, but if you learn the lessons of wealth well, there can be a bloody great set of floodlights!!!

Good luck and thanks for writing from the viewpoint of somebody just starting their journey to wealth (being already well on their way to debt-free) … I write from the viewpoint of looking back over my shoulder. AJC.
twiggers responded:
Posted: April 6th, 2008 at 11:47 am
I am definitely doing all three as well….and stumbled on this site shortly after starting my blog! It’s definitely not easy, but all three can be done! And when done successfully you will see your debt decline quite rapidly!
Debt Reduction Formula responded:
Posted: April 7th, 2008 at 9:33 am
Stephanie – Good for you! Keep on being B.A.D.

FrugalDad – Thanks for the compliment!

AJC – Thank you.

Twiggers – Like you said, it’s not easy, but it CAN be done. Keep fighting the good fight.
debtbuster responded:
Posted: May 27th, 2009 at 6:37 pm
i really like strategy #2. i’m still learning how to call these credit card companies and get results. if there’s a will, there’s a way. i figure if they say “no”, i’ll keep calling until they say “yes”.