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debt reduction strategies
Whenever you set about a debt reduction plan consider these cost aspects. Any debt reduction plan should be chosen or pursued with these goals in mind.
Debt Reduction may be achieved in either or both of two ways:
1. Debt Reduction in the amount of Debt Principal
a) Payoff all, or part of the original principal amount borrowed (without incurring a new debt).
b) Payoff a lesser amount than the original principal for a lower absolute total cost of debt aka Debt Settlement.
2. Debt Reduction in the Cost of Borrowing
c) Negotiate an interest rate debt reduction, lowering monthly repayment cost and therefore absolute total cost of the debt aka Debt Management Plan.
d) Secure an interest rate debt reduction, lowering monthly repayment cost and therefore absolute total cost of debt OR lower monthly repayment cost, at the expense of a higher Absolute Total Cost of Debt - due to an extended repayment period. aka Debt Consolidation Loan
e) Prioritize repayments made to two or more creditors to motivate towards achieving debt paid off. aka Snowball Debt Reduction Technique.
f) Strategize repayments made to two or more creditors, but unlike snowball debt reduction, ensuring the lowest possible absolute total cost of debt aka Avalanche Debt Repayment Technique
g) Make multiple periodic repayments to lower the balance assessed for interest aka Snowflake Debt Repayment Technique
h) Rationalize cards to cut the cost of borrowing on cards aka credit card consolidation
Debt Reduction aka Debt Settlement
Debt Reduction is frequently used to refer to the service type that is correctly called Settlement. When you see the term "Debt Reduction" or debt reduction negotiation more often the service on offer or being described is the settlement service type.
Debt reduction negotiation or settlement is one of the three core service alternatives available or general debt reduction strategies. The term Debt Reduction is used interchangeably with settlement because this is the only one of the debt reduction strategies that seeks to reduce the original debt amount.
If successful, there is a debt reduction in debt principal. Other service alternatives (Loan and Plan) achieve debt reduction by lowering the cost of borrowing. The settlement service type offered by debt reduction companies involves abandoning creditor repayments in favor of a routine savings plan. Debt reduction companies require that you to build up monies into an account that the debt reduction company later uses as an enticement to creditors.
Where this approach works the debt reduction company and your creditor/s agree through a debt reduction negotiation process to accept a lump sum payment from you to settle the account. Successful debt reduction negotiation leaves you paying back less than the original sum of money actually borrowed (principal) and the debt is legally discharged.
It is important to understand that all service alternatives carry risks and reward. In reality, debt reduction as a named service provided by any company offering debt reductions is considered the riskiest option of all. Furthermore, there are debt reduction scams to be avoided. Often those seriously evaluating debt reduction as a viable alternative are also evaluating bankruptcy chapter 7 and obtaining legal debt reduction advice.
You can read about all your debt reduction options and find free debt reduction advice in general on this website. You may also view our free debt reduction summary of alternatives for Debt and Consolidation
Debt Reduction Strategies
Regardless of which of the Debt Reduction Strategies you choose all options require commitment in terms of both time involved with a program and personal private financial discipline in the form of self debt reduction help. All debt reduction help services, approaches or techniques may be performed on a do it yourself basis.
In the case of the debt reduction loans approach, in addition to specific named debt reduction loans there are a host of alternative borrowing options for a debt reduction loan or consolidation funding. This is the do it yourself debt reduction consolidation approach where you consolidate one or more principal debt balances into a new loan. Debt reduction comes through a lower interest rate.
With a non profit debt reduction plan approach a non profit debt reduction planner negotiates for you. Payments into a debt reduction plan (DMP) are made by the debt reduction planner or administrator on your behalf. Personal debt reduction plans or repayment techniques for debt reduction are typically exercised in the case of credit card repayments (although the logic applies to any multi creditor situation). You achieve debt reduction in the cost of borrowing by putting your repayments to greatest affect. Other card debt reduction solutions include balance transfers and card consolidation. In general debt reduction solutions require that you do not add further to any principal balance or add to the debt total by adding further lines of credit. In the case of credit cards, this means stopping all further use immediately. Any purchase made on a credit card means that you are borrowing more money and increasing the principal balance assessed for interest. Freezing borrowing is an essential feature of debt reduction management. You cannot offload a debt reduction problem to a service provider. Good debt reduction management necessitates private fiscal efforts. Best debt reduction tips? You may find further information on the best debt reduction outcomes here and by reviewing our reduction debt "Settlement" articles.