Make a Plan that Gets You "Out from Under"
The Short-Term Pain is Worth It
The faster you pay your debts:
- The less interest you’ll pay.
- The quicker you’ll be debt-free.
- The more hard-earned money you’ll have to spend or save as you see fit.
So make a plan:
- Check the rates you’re paying. There could be a better deal out there.
- Make a budget and determine how much MORE you’ll use each month to pay down your debts. Use our Figure Out a Budget in 3 Minutes to make a basic budget. It’s all most people need.
- Determine which debt you’ll pay down first and which you’ll pay down next.
- Then pay down your debts! And keep your statements & track your progress – to stay motivated & get where you want to go.
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Check the Interest Rates You Pay
On Your Mortgage, Auto, Student Loans & Credit Cards
Compare what you pay to rates advertised on-line, in newspapers and magazines. Ask friends and family what they pay.
If you are paying high rates on auto, student, or credit card loans, consider consolidating your debt
- If you think you are paying too much, get your credit score – your credit score matters. (See How To Improve Your Credit.) Then find out the interest rates charged for people with scores in your range.
- If you can improve your credit score, do that right away!
- If you are paying too much, call your lender and see if you can get a lower rate. Ask to speak with a supervisor if you can’t get anywhere with the first person you speak with.
- If you can’t negotiate a lower rate, consider switching lenders.
- If you have a hardship, ask your lender or a legitimate credit counselor about
- Forbearance. A plan that freezes your account and sets up automatic monthly payments.
- Debt Management. Where you work with a credit counselor.
- And watch out for debt-collection scams that prey on people in financial trouble.
- If you are paying high rates on auto, student, or credit card loans, consider consolidating your debt in a lower-interest home equity loan or by refinancing your mortgage. Your new interest rate should be lower and tax-deductible. But know if you can’t make the payments, you could ruin your credit AND lose your house. See Learn About Home Equity Loans & Lines of Credit and Figure Out “If You Refinance …”
Are you paying too much? What Americans paid in interest last year:
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The Game Plan
General Rules & Strategies
- Pay off debts handled by a collection agency – your credit is at risk.
- Don’t fall behind on any debts – pay at least the “minimum due” to ward off collection agencies.
- Try not to add more debt – even more low-interest debt.
Two basic strategies. Pick the one that makes most sense to you:
- Pay off your smallest debt, then the next smallest, then the next. You’ll soon have fewer bills and creditors, and see “light at the end of the tunnel.”
- Pay off the debt with the highest interest rate, then the next highest, then the next – and don’t reduce the amount you use to pay down debts until you’re “out from under.” It’s the quickest & cheapest way to pay off what you owe.
To see how fast you could be debt-free, CLICK HERE.
While You're Paying Down Debt, Don't Borrow Stupid
Even though you’re paying down debt, you might borrow to buy a house or a car, or even charge day-to-day expenses on a credit card.
So keep yourself from borrowing stupid, Learn About Borrowing Smart.
Get It Done
Nothing Happens Unless You Make it Happen
Print out this How-To and put reminders in your calendar to help you move from How-To to Done!
It’s often hard to know how much you’re spending – until you overspend. So set up a system that puts you in control.
How To Manage Everyday Spending
Small changes can have a big impact.
Figure Out Where to Cut Spending
There’s nothing wrong with borrowing – we all borrow to buy a house or a car – as long as you don’t borrow stupid.
Learn About Borrowing Smart
To 1) cut your payment, 2) pay it off faster, 3) get cash, or 4) switch to a fixed or adjustable rate loan.