Creditors set minimum payment amounts, and you can stay out of financial trouble by paying them each month. Unfortunately, paying just the minimum is a good way to spend years paying off debts and accruing hundreds or even thousands of dollars in interest. If you want to eliminate debt faster, you'll have to get serious about spending less and paying more than the minimum. In addition, negotiating better interest rates may make it easy to cut your debt down to size.
Stop spending on credit. This will only make matters worse. If you or your partner has to purchase something with plastic, use a debit card instead.
Contact your lenders and let them know you are looking for ways to reduce your debt quickly. They may offer accelerated payment plans or settlement deals.
Request lower interest rates on your credit cards. If you are in good standing with a credit card company, it may offer a lower interest rate in order to keep you as an account holder.
Take advantage of balance transfer offers to get a lower interest rate. For example, a 0 percent balance transfer will allow you to pay only the principal for a period of time. You can pay your debts off much faster this way instead of dealing with both principal and interest payments each month.
Consolidate your bills with a debt consolidation loan. If you can secure a debt consolidation loan with a low interest rate, you may pay less overall. In addition, you will end up with only one bill to pay rather than several credit card bills to keep track of each month.
Pay extra money on high-interest debts first. Once you've paid off the debt with the highest interest, move on to the debt with the next highest interest rate. Pay your list of debts off in order until you have paid off the debt with the lowest interest rate. This method of eliminating debt is called the snowball method.
Refinance your home mortgage if you can secure a better interest rate. The lowered interest rate will help you eliminate your mortgage debt faster.
Take out a home equity loan and accept a lump sum check. Use this to pay off your other debts. This option only makes sense, however, if the home equity loan interest will be less than the overall interest you would have paid for your other debts.
- After paying off your credit cards, keep the accounts open to protect your credit score. Closing credit accounts can cause a dip in your score.
- Avoid home equity loans if you are not sure you can pay the bills on time. You risk foreclosure if you default.
- Bankruptcy should be a last resort for debt elimination. Use it only if you have no other way of paying your debts. Making only the minimum payments for years may be better than having a bankruptcy on your credit report for 10 years.