Call Your Creditors
The first step you should always take is to call your creditors and try to negotiate a better rate. Explain your financial situation and you will probably find that they are willing to help you rather than turn your account over to a collection agency and potentially never see any money. This step is often overlooked but it’s easy to do and doesn’t cost a thing.
Pay More than the Minimum
Never pay the minimum due on your debt. The minimum is usually only a tiny percentage of the amount owed and when combined with interest rates, you’ll end up taking years to pay off the debt. If you have a very high interest rate you may even be charged more each month than you’re paying! One of the most efficient ways to pay off debt is to pay as much as you can each month. Make a budget and go over your expenses. Find anything you can shave off and direct that towards your debt. If your minimum monthly payment is $50, aim for $100.
Consider Balance Transfers
If you have debt spread over a number of credit cards, sit down and take a look at your statements. If you have balances with interest rates ranging from 12-25%, consider transferring the high-interest balances onto the low interest cards. This won’t get rid of your debt immediately but it is one of the ways to pay off debt by saving money in finance charges.
Tackling Credit Cards
Here’s a great strategy for paying off your credit card debts, one by one. Pay the monthly minimum due on the lower interest cards and put all your extra money into the highest interest credit card. When you have it paid down, move on to the next highest interest rate. Now you’ll have more cash after paying off the last card. Keep up this cycle. This aggressive tactic is often called snowballing. As the Motley Fool puts it, “As your debts decrease, the amount of money to have to attack them increases. Your payments snowball until all of your debt is pummeled.” This plan will show immediate debt-reduction and money-saving results.
Turn to Savings
Here’s another one of the ways to pay off debt. If you’re sinking under high interest rates and large amounts of debt, consider using money from your savings account or investments. If you’re paying large amounts in interest–sometimes up to 30%–this tactic will probably save you money. Considering the money you’ll have to pay to taxes, chances are your savings aren’t earning anywhere near this amount. This should be done with caution, however. Leave yourself money you may need in case of emergency.
Home equity loans
If you own your own home and have accumulated equity, you may be able to consider a home equity loan line of credit (HELOC). The loan will have a low interest rate–much lower than you’re paying on your credit card–and will give you money to pay off all your debts. According to the Motley Fool, you can also itemize your deductions on your income tax return, letting you deduct HELOC interest paid. Use extreme caution, however, not to just accumulate more debt after you’ve paid it off. Once you get rid of your credit card debt, make sure you pay off your HELOC.
Cut Unneccesary Expenses
Another effective way to pay off debt is to cut expenses and use it to pay debts. There are many things you can do every day to save money. Consider using coupons, reducing your cable service plan, skipping the Starbucks coffee, and cancelling extra phone services like call-waiting. Some more tips include using game and movie rental services like Gamefly and Netflix to avoid purchasing expensive games and taking trips to the movie theater. These little expenses quickly add up, so why not save the extra $100 or so dollars each month and funnel it into those high interest credit cards?
Contact Creditors Again
If you’ve already tried everything else, contact your creditors letting them know your current situation. Tell them that you’re considering bankruptcy because you’re left with no other option and ask for a better repayment plan and a lower interest rate. At this point, they will probably give in and help you. If you file for bankruptcy they know they’ll never receive any money; however, they can offer you a better rate and start getting the desired payments from you.
“10 Ways to Pay Off Debt.” Womensfinance.com. 2005. 07 May 2009. https://www.womensfinance.com/wf/manage_debt/
“9 Ways to Pay Off Debt.” MotleyFool.com. 25 March 2008. 07 May 2009. https://www.fool.com/personal-finance/credit/9-ways-to-pay-off-debt.aspx