7 Easy Steps to Pay Off Debt

The road to a debt-free life doesn't have to be long -- or painful.

Senior Hispanic couple paying bills
By Hitha Prabhakar

Let's be honest. Did you overspend in 2013? If the answer is "yes" you are not alone. American consumer debt rose 1.1 percent to $11.28 trillion in the third quarter of 2013, according to the Federal Reserve Bank of New York. That's the highest increase in household debt in more than five years!

There is never a quick-fix solution to getting out of debt. But dealing with debt doesn't have to be painful. Here are seven steps to consider when making your debt payoff plan:

1. Create a debt payoff strategy. If one of your financial goals for the year is to get a better handle on debt, put together a debt payoff strategy that complements your budget and won't overextend you financially. It's also a good idea to create a master list of all your recent holiday-related expenditures that were paid for with a credit card or a personal loan. Knowing what your total debt load is will make it much easier to create a realistic payoff strategy. And reward yourself when you hit certain milestones to keep the momentum going!

2. Pay off the most expensive debt first. Look at the interest rates of all of the credit cards you use to make purchases and sort them from highest to lowest. By paying off the balance with the highest interest first, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards.

3. Lower your interest rate. You can often lower your credit card interest rates by doing a balance transfer.
This means moving your credit card to another bank that might lower the interest rate to get your business. Shop around and try to get the lowest interest rate for the longest duration (preferably until the debt is paid off completely). Just make sure you fight the temptation to use that new card, and commit to paying off the balance you moved over in a timely manner.

4. Use annual budget data to plan against pitfalls. Several personal finance tools allow you to see the sum of your spending for the year, which can be your greatest asset in pinpointing the areas where little changes will result in major financial progress in 2014. For example, by vowing to reduce spending in your highest-spent category by a mere 10 percent in 2014, you could put more toward emergency savings, retirement and your credit card debt.

5. Stop creating new debt. As you start to pay down your debt, stop using credit cards on a regular basis. Even if you earn cash back or other rewards with credit card purchases, stop spending with your credit cards until you have your finances under control. It's probably a good idea to leave the cards at home when you're out shopping so you aren't tempted!

6. Allocate your holiday bonus. If you received a holiday or New Year's bonus, put that money toward your debt payoff plan. Avoid the temptation to spend that bonus on a vacation or other luxury purchases at the beginning of the new year, so you can focus on improving your financial health instead.

7. Pay more than the minimum. Break the habit of paying only the minimum required each month on your credit card statement. Paying the minimum -- usually 2 to 3 percent of the outstanding balance -- only prolongs a debt payoff strategy. Strengthen your commitment to pay everything off by making weekly, instead of monthly, payments. If your minimum payment is $100, double that to $200 or more. Early and/or multiple payments mean reduced interest expenses and a quicker pay down, which will help you get back on a positive financial track.

Like anything having to do with self-betterment, the road to being debt-free can be a difficult and arduous one. But following these basic steps as your guide can help get you on the right track.

Hitha Prabhakar is a consumer spending and retail analyst and mint.com spokeswoman, the leading web and mobile money management tool that helps people understand and do more with their money.

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Live debt free vote Democratic for a living.

January 21 2014 at 3:18 PM Report abuse -2 rate up rate down Reply

Is this article meant for Democrats. I think NOT

January 21 2014 at 10:54 AM Report abuse -3 rate up rate down Reply


January 21 2014 at 10:49 AM Report abuse -3 rate up rate down Reply

Go play your idiotic anti anything different games elsewhere kiddies. I should have looked and realized this piece would attract nutcases.

January 21 2014 at 8:06 AM Report abuse +4 rate up rate down Reply

So nothing new or exciting.....how about don't create the debt to begin with? You don't need a new car every couple of years, you don't need a bigger house if you have a bathroom, eat in kitchen, bedrooms and a living room. If you have another baby and you have a mountain of debt why didn't you plan ahead?

January 21 2014 at 8:03 AM Report abuse rate up rate down Reply

Please kids, go back to your Box of X, there are adults in the room trying to carry on a conversation offering real answers to real problems.

January 21 2014 at 6:41 AM Report abuse +1 rate up rate down Reply
1 reply to k4jlp's comment

Darling perhaps it's time for your mommy to pull you off the computer now dear.

January 21 2014 at 1:50 PM Report abuse rate up rate down Reply


January 20 2014 at 10:09 PM Report abuse -6 rate up rate down Reply
1 reply to a1usaindacrapper's comment

Muslim clown ? I bet you belong to the tea party.

January 21 2014 at 9:37 AM Report abuse +1 rate up rate down Reply
2 replies to david36rush's comment


January 21 2014 at 10:41 AM Report abuse -2 rate up rate down

Liberal clown

January 21 2014 at 3:16 PM Report abuse -1 rate up rate down

Evan, Evan he's our man, he mooches of the Government as often as he can.

January 20 2014 at 4:46 PM Report abuse -1 rate up rate down Reply

1 money 2 money 3 money 4 money 5 money 6 money 7 and more money.
money talks, BS walks.

January 20 2014 at 9:37 AM Report abuse +4 rate up rate down Reply

After a lifetime of dealing with credit (coming up on 70 yrs.), I can say without reservation that credit is a great thing to have but a bad thing to use except for major purchases (house, car, etc.). I use my card just enough to keep Discover interested but never to the extent where I can't pay it off in a month or so. I have learned to put money in my bank account and borrow from myself and pay it back. That's a hard lesson to learn but it will keep you out of trouble with creditors.

January 20 2014 at 9:28 AM Report abuse rate up rate down Reply
1 reply to Dan's comment

@ Dan -- Maybe you don't have as much financial savvy as you think you do. Discover is probably the worst credit card to have. This is because Discover applies double cycle billing (which means you pay interest on your credit card balance TWICE with Discover every month). Just try carrying a balance on your Discover account and thinking you can pay it off in two months. (That part of your post is wrong.) You will be lucky to pay that balance off in 4-5 months. (And, yes, I am speaking from personal experience with Discover.)

Even if you have a small balance with Discover and pay the entire amount, they will keep slamming you with more interest owed on that double cycle they use. The next month, they will charge you interest on the leftover interest from the previous month. Then, later in the month, they will charge you interest a second time on that slightly larger balance. It's a vicious cycle and tough to escape from it.

Apparently, you also think it's a good financial decision to sign up for a standard 5 or 6 year car loan on credit. It isn't. But most people continue signing up for car loans, and this is how they will end up spending more total money on cars during their lifetime than on any other major purchase (including a home).

What's the alternative to getting a lengthy car loan?? Don't finance a car for more than 24 months. (Let the total of the payments you can reasonably afford for 2 years determine how much you can afford to spend for a car.)

At the end of 24 months, continue to make your "car payments" --- but deposit that monthly "payment" into a credit union savings account. Continue doing this (and driving your paid-off car) until you have enough money in your CU savings account to pay CASH for your next car. (Shouldn't be a problem to save that much each month. You are already used to paying that amount on your car loan.) Additionally, try to make your current car last for a minimum of ten years.

Adopt this system and you will probably never have to sign up for another long-term car loan.

January 20 2014 at 12:36 PM Report abuse +1 rate up rate down Reply
1 reply to Valerie's comment

Actually Valerie, I just got two new cars and paid cash for both. I was able to do that because I have money in the bank. As for Discover, regardless of their interest rates, they won't ever make much from me. I pay off my balances quick. I appreciate your interest in my finances, though. We will be fine.

January 20 2014 at 5:49 PM Report abuse rate up rate down