Debt can quickly become overwhelming if you use your charge cards a lot and add a car loan and other financial burdens into the mix. You may be able to rid yourself of debt if you are willing to stick to a tight budget, negotiate with lenders, consolidate your bills and put as much money as possible toward paying them down. It will also require taking a break from using credit for a while, but the inconvenience will be worth it when your balances finally reach zero.
Step 1
Destroy your credit cards and declare a moratorium on opening new accounts or getting new loans. You can keep one card for emergencies, but make it very difficult to access by locking it away in a hidden spot in your household or a bank safe deposit box.
Step 2
Prioritize your debts. Your initial efforts at getting rid of debt should be aimed at the accounts with the highest interest rates. Go through your credit card and loan statements and any other financial records to list your debts by interest rate. For loans, note if there is a penalty for early payoff. The Money Store says this gives you the scope of your task and prepares you to negotiate with lenders.
Step 3
Lower the interest rates on your highest debts by asking the lenders for a reduction or transferring the balance to a lower interest account. The Motley Fool financial website calls this "snowballing" your debt. For example, if you have a credit card with an 18 percent interest rate and one with 10 percent, transfer the balance from the first card to the second. Try to get a credit limit increase if your available amount is not high enough. If you cannot get an increase, transfer as much of the high interest balance as possible.
Step 4
Create a budget that allows you to put the highest amount of money possible toward the most expensive debts. The Money Store says you should cut out any unnecessary expenses so as much money as possible can go toward getting rid of your debt. It can take years to pay off high-interest credit cards and loans if you only make the minimum monthly payment. Motley Fool says very little will go toward the principal, and you will keep racking up interest charges. Paying as much as possible will lower the balance rapidly.
Step 5
Channel any extra money toward the next account on your list each time you pay off an account. This will get rid of your debts as quickly as possible.
Tips and Warnings
- Motley Fool recommends considering a home equity loan if you have built up a good amount of equity and can qualify for a favorable interest rate. This allows you to pay off your high-interest debt and consolidate your balances into one loan and payment.
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