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Reduce Your Interest Rates

If you're ready to make changes, and your partner is on board as well, you're already ahead of the game. The next step is to minimize the amount you pay each year in interest on your debts. After all, the less money you lose to your debtors without actually reducing your debt, the better.

The first step is to simply make a list of every debt you owe. On that list, record several pieces of information for each debt: the name of the person or company you owe money to, how much money you still owe, what the interest rate on that debt is, your most recent monthly payment amount, your account number, and the telephone number of the person or business you owe.

Next, move through that list of debtors and call each one. Explain your situation—you're attempting to set up a debt repayment plan because you're worried about your financial future—and request a reduction in the interest rate of your debt. If the first person you talk to won't do this, request to speak to their supervisor and repeat your case.

Some people argue against this approach because there is some risk that the business may reduce your credit limit or close your account. To that argument, I say, "Who cares?" After all, your goal here is to repay the debt, not to merely free up some room so that you can charge it up again.

Once you've directly reduced your interest rates, it's time to look at indirect methods. Set up a meeting with a representative of your local credit union and see whether or not they have a loan package that will enable you to consolidate some of those debts. Consider transferring balances from high-interest credit cards to lower-interest ones (this can usually be done with a phone call to the company holding your lower-interest card).

One suggestion: Do not borrow money from family or friends to pay off high-interest debts. Borrowing money from people you love puts a completely new dynamic on the relationship, adding a lender-borrower relationship to the mix. Now, ask yourself, do you love the businesses you owe money to? Do you enjoy the bills they send you, requesting money? Is that a dynamic you want to add to your relationship with your friend or loved one, where they're trying to decide how to ask you to start repaying that debt, while you're feeling resentment when they ask you for repayment? Don't mix loved ones and debts—they just don't mix.

At this point, you've made some significant progress toward minimizing the amount you're going to pay in interest. Your monthly minimum payments should be lower than before as well. Now comes the hard part—buckling down and paying off the debts.

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