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Step 1
Take stock of your financial situation. Write down a list of your income and current monthly bills. Itemize every dollar going in and out, from paycheck deposits to weekly grocery, gas and entertainment expenses. Seeing where your money goes is the first step to paying down debt.
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Step 2
Set a budget. Go over your list and cut back on unnecessary spending. If you're eating out, impulse buying at sales or paying for a gym membership you don't use, cut them out of the budget. Ideally, anything that you pay for with a credit card will be cut from your budget. To pay down debt faster, use cash or checks only to pay your monthly expenditures.
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Step 3
Think need before greed. Before making a purchase, ask yourself if you really need the item or service. If it's something that can wait or you don't absolutely need it, do not buy it. You don't have to put off purchases indefinitely, but tell yourself you can still buy the item in six months to a year, when you're in better shape financially.
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Step 4
Negotiate better interest rates on loans and credit cards. Most banks and credit card companies are not going to offer you a deal if you're already using their service. They usually reserve this feature to get new clients. It's up to you to call credit card companies and ask for a better rate.
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Step 5
Consider transferring debt for better rates. If your current loan or credit card company will not work with you to lower interest rates, shop around for lenders that offer teaser rates for a period of time. These teaser rates can be as low as zero percent on balance transfers for three to 12 months. A lower interest rate can save you thousands of dollars in interest over time.
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Step 6
Pay off loans or credit cards with the highest interest rates first. If you cut back on expenses and pare down your spending to a need basis, use the extra to make larger payments on high-interest debt. The faster you pay down these high-interest loans or credit cards, the more money you save. Pay off the cards and loans with the highest balance next. Big balances mean big interest payments. It may not seem like it now, but spending all your extra money to pay this debt down is putting money in your pocket.
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Step 7
Look beyond credit card debt. Once you have effectively paid down high-interest loans and credit cards, focus on mortgage, car loans and other loans. Making just one or two extra payments on these loans each year can save you thousands of dollars and cut years off the length of the loan.
