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If your monthly debt payments leave you with little wiggle room in your budget, there may be ways you can reduce the size of bills that have to be paid, month in and month out.
Most of us have money leaks, or at least money we spend without stopping to think much about. Tracking your spending, including reviewing credit card bills for subscriptions you don't use (or don't use enough to justify the expense), might give you some space to maneuver.
But if you need more help than you're going to get by skipping lattes or checking for change behind the sofa cushions, you may need bigger solutions. Let's go over some actions you can take to trim your bills.
1. Refinance Your Car
New financing on your existing car might lower your payment. If your credit has improved significantly since you purchased your vehicle, or your credit union is offering a promotion, you might be able to get a loan with a lower interest rate. Be sure to check origination fees and other costs before applying for a new loan.
If you have a great deal of equity in your car, you might even be able to do a cash-out refinance, but keep in mind you'll be in debt longer. Make sure you are comfortable with both the payment and how long you'll be making it.
2. Recast or Refinance Your Mortgage
Recasting your mortgage requires making a lump-sum payment toward your loan to reduce the total amount owed. Recasting results in the loan being re-amortized and payments being cut proportionately. Not every lender offers it, and it generally requires about $20,000, but if you just had a windfall, this could meaningfully reduce your mortgage payment for years to come. A recast does not require a new lender or a credit check.
Refinancing does require a credit check and potentially a new lender. It is a popular option when interest rates are dropping. But if interest rates are higher now than when you first got a mortgage, it may not make sense.
3. Use a Balance Transfer Credit Card
A balance transfer card is an option for reducing payments on personal loans or credit cards if you have a good or excellent credit score. Balance transfer cards provide an interest rate of 0% during an introductory period, which you can use to get some budget breathing room or to make quicker progress on debt repayment. Do be sure you are aware of the date the introductory rate ends and have the balance paid down or off by the time it rolls around.
4. Consolidate Credit Card Debt With a Personal Loan
A debt consolidation loan can turn multiple credit card payments into a single fixed-rate installment, possibly at a lower interest rate. If it both shrinks your payment and lowers your interest rate, it can be a very smart decision for your overall finances as well as reducing your monthly debt payments.
5. Ask for Help
Lower bills might come if you ask your creditors for relief, or someone asks on your behalf.
A credit counseling service may be able to negotiate a lower payment for you as part of a debt management plan. You will generally have to close your credit accounts to participate, but successfully completing the program can preserve your credit and keep you from needing to declare bankruptcy.
Appealing on Your Own
If your situation is temporary, you can try calling creditors and asking for a reduced interest rate. They may not agree to it, but if you have been a good, longtime customer, they may be willing to give you some concessions. That also may be true of some medical debt. Asking can't hurt.
6. Negotiate a Settlement
If you are dealing with a debt collector, you may be able to get them to agree to accept less than you actually owe. The Consumer Financial Protection Bureau (CFPB) recommends checking to be sure you actually owe the debt, and to see who you should pay. Debts are often sold to third parties for collection. Ask your creditor to "validate the debt," which gives you more information on it.
You can offer a proposed settlement—either a lump sum or a monthly payment. There are also debt settlement companies that will do this on your behalf, but the CFPB cautions that using them can be risky. Most creditors will not be open to a settlement unless you have missed at least one payment, and missing a payment can devastate a good credit score.
7. Reduce Monthly Payments That Aren't Debts
Not every recurring charge is a debt, but shrinking those can free up more cash to pay down debt. Here are some strategies to try.
Try to Cut Insurance Costs
It can pay to shop around for insurance every year or so. Auto insurance rates vary tremendously, and the best rate last year may not be the same one as this year. Do check customer service rankings too. If you need to file a claim, the quality of service can matter a great deal.
Experian has a free tool that can help you compare policies for vehicle and homeowners insurance. If you can't find a lower price tag for the same coverage, you can take a look at deductibles: Higher deductibles can mean lower premiums. But consider whether you'd be able to pay the higher deductible if you needed to.
If you have both auto and homeowners or renters insurance, check to see if using the same carrier for both will save money.
See if Your Cellphone Plan Is the Best Deal
It may be worth checking to make sure the cellphone plan you have is still the most appropriate one for you. If you are paying for much more data than you actually use, for example, you may want to check to see if you can save by changing plans or carriers. By the same token, if you financed your phone as part of your monthly bill, and now it's paid for, it may be time to make sure you are getting the best deal.
If you have cellphone and internet services from different providers, check to see if bundling will save money.
Similarly, changing your habits can have a significant impact on utility and perhaps transportation expenses. And if those bills are lower, there will be a bit more breathing room in a tight budget.
The Bottom Line
Reducing your monthly debt payments can help you through a financially challenging time, particularly if you can get a lower interest rate and save money overall. If your credit score has improved significantly since you originally applied for credit, you may qualify for better terms. (You can check your credit score for free with Experian.)
You could consider a debt consolidation loan, a balance transfer offer or refinancing to get lower monthly payments. Another way to tackle it is to scrutinize other monthly bills for ways to save. However you do it, freeing up room in your budget can make you less vulnerable to unexpected bills that inevitably arrive.