Debt consolidation may seem tempting when you want to get out of debt. It combines all of your accounts together and lets you make one monthly payment rather than juggling multiple accounts, payments and due dates. You don't need to do a consolidation if you are willing to make getting rid of debt a priority. You can pay off your accounts if you create a workable payment plan that targets high interest accounts first and stick to your budget..
Step 1
Put together a budget and payment plan that lowers expenses in other areas so you can put as much money as possible towards your debts every month. Simple changes like bringing your lunch to work, cutting back on restaurant dinners and disconnecting premium cable channels will give your more money to pay down your bills.
Step 2
Place a personal moratorium on incurring any more debt until your current debts are paid off. Do not use your credit cards or get any new cards, loans or other accounts. Stick to purchases for which you can pay cash.
Step 3
Check the interest rates on your credit cards, loans and other accounts. Ask the card issuers and financial institutions to lower your rates on those with the highest interest. The Bankrate.com company website says they will often do it on request to keep your from transferring the balance or refinancing the loan.
Step 4
Adjust your payment plan to put extra money towards the highest interest accounts. You will save money in the long term by paying them off more quickly because more money goes towards interest rather than the actual account balance. The Motley Fool financial site also recommends transferring balances from high interest credit cards to lower interest accounts if your credit limit allows it.
Step 5
Shift the extra money onto the account with the next-highest interest rate as you pay off your accounts. This lets you build up momentum as you are able to channel more money towards each subsequent account.
Tips and Warnings
- Debt reduction guru Dave Ramsey recommends targeting your smaller debts first instead of focusing on high interest rate accounts. He says this method is good for people who like seeing fast progress. Smaller debts can be paid off quickly with a concentrated effort. Ramsey says this can inspire you to stick with your budget. The excess money is then "snowballed" into the next lowest debt, and the process is continued until all of your accounts are paid in full.
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