Debt Free Strategies

Pay off the credit card with the highest interest rate first.
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You’ve seen kids whose eyes are bigger than their stomachs; they wind up putting too much food on their plate. The same can go for adults who are in debt. If you only make the minimum payment on your credit card because that's pretty much all you can afford to do, maybe it’s because your eyes are bigger than your bank account. You can become debt free, though, if you have and stick with a plan.

Pay Credit Cards

Your first priority to get out of debt is to pay off your credit cards. Start chipping away at the credit card with the highest interest rate. Pay as much as you can each month toward that card, while paying the minimum balance on any other cards. Whatever you do, don’t use that credit card again until you pay it off. Live on a cash basis, meaning, buy only what you have the cash to pay for. As soon as you pay off the first card, apply the same principle to any remaining cards.

$10 a Day

Another strategy to get out of debt is the "$10 a day" plan. Notice where you're spending your money each day, and figure out a way to set aside $10 a day. Ten dollars may not sound like much, but you have to apply it every single day, which means you may have to cut costs somewhere. If you have credit card debt, all of the $10 a day goes toward that. Once you pay off your credit cards, put your $10 a day into a money market savings account. Once you have an emergency cushion in this account -- which ideally is six months worth of expenses -- put the $10 a day into a tax-deferred account, such as an IRA.

Change Your Mindset

Not too long ago, no one thought about extending a car loan for five years, but now it’s pretty common. People do it to get into that cute Beemer, or the sturdy (but luxurious) Range Rover. But if you have to extend yourself for five years or more to afford the payments, you’ll pay dearly in interest over the course of the loan. And, you may be upside-down on your loan for much of that time, meaning that you owe more on the car than what it’s worth. That's never a good position, because you might need to sell the car before you're done paying for it. If you want to be debt free, change your mindset on the type of car you can afford by taking out a three-year loan, maximum.

It’s okay to hold a mortgage, especially when your interest rate is low. But if you want to pay that off sooner, the easiest way is to make an extra payment, each month, that is one-twelfth of your monthly payment. That way, you make the equivalent of one extra payment per year, which can shave years off your mortgage.

Credit Counseling

If despite your best efforts, you can’t get out of debt, you can get help through a credit counselor. You can find honest ones through the National Foundation for Credit Counseling. A counselor can work with you by helping you make a budget, and by showing you how to manage your money.

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