Tips on Paying Down Debt

Carrying a load of debt is no way to start off your life together. According to the Federal Reserve Board, as of September 2010 U.S. consumers hold about $2.4 trillion worth of revolving debt, which includes credit cards. And, of course, credit card debt is only the beginning -- auto loans, student loans, personal loans and your balance with your bartender or hair stylist count too. With a little discipline, you can cut down the amount of cash you send to a post office box in Delaware or South Dakota.

Call Your Creditors

If you are up against high interest rates on your debt, it will take you longer to pay it off, particularly if you're working on a month-to-month payment schedule. Phone your creditors and ask them to lower your interest rate temporarily or for the long haul. This approach can work with credit card companies, particularly if you have been making on-time payments and your overall credit rating is good. If other companies are wooing you with balance transfer offers, use them as leverage with your current lender. If you manage to get your interest rate reduced from 18.9 to 9.9 percent on a $5,000 balance, you'll save over $11,300 in interest payments over the life of the debt, even if you only make a $100 monthly payment.

Don't Minimize It

Pay more than the minimum. This advice is almost as old as not going outside in the cold with wet hair, but it's legit. It's plain and simple. At 18.9 percent, paying a $100 monthly minimum payment on a $5,000 credit balance results in total principal and interest payments of $19,564.30. If you just double your monthly payment to $200, the total cost of the debt drops to $8,109.16. The real kick, however, is that the $200 monthly payment takes your balance to zero in 2 years and 8 months compared to 8 years and 2 months if you only pay $100 a month.

Snowball It

One popular way to pay down debt, advocated by financial guru and radio host Dave Ramsey, is the snowball method. While there are several variations out there on this strategy, Ramsey recommends listing all of your debts, with the smallest payoff or balance first. Put as much cash as possible toward the smallest balance and pay the minimum on other balances and. Ramsey argues that you get more gratification by paying off the smallest debt first, thereby giving yourself the emotional lift you need to stay the course. After the smallest debt is gone, move on to the next smallest, and so forth.

Blow Out Your Savings

This can be a relatively risky proposition. You always hear that you should have an emergency fund equal to three to six months' worth of expenses. If, however, you are relatively secure in your job, it might make sense to use your savings to pay down your debts that have high interest rates. Look at it this way -- there's no sense in having savings earning interest at a one percent clip when you're paying 20 percent interest on a credit card. After you pay off the lofty rate credit cards with your savings, you can turn around and use that money to rebuild your emergency fund and general savings. As Bankrate.com reports, financial advisors are mixed on the merits of this approach; ultimately, it depends on the specifics of your financial situation.

About the Author

As a writer since 2002, Rocco Pendola has published numerous academic and popular articles in addition to working as a freelance grant writer and researcher. His work has appeared on SFGate and Planetizen and in the journals "Environment & Behavior" and "Health and Place." Pendola has a Bachelor of Arts in urban studies from San Francisco State University.