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
Alamy
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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59 Comments

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progressivehoax

Live debt free vote Democratic for a living.

January 21 2014 at 3:18 PM Report abuse -2 rate up rate down Reply
skcarcomed_0

david36rush
LOL !....looking at skcarcomed_0 past comments I would have to agree.

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Only a freeloading welfare slug would agree with a comment posted by rickperrystoop2

January 21 2014 at 1:45 PM Report abuse -1 rate up rate down Reply
skcarcomed_0

david36rush
Muslim clown ? I bet you belong to the tea party.

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What does that have to do with the tea party. Davids a liberal bigot!

January 21 2014 at 1:42 PM Report abuse -1 rate up rate down Reply
liberals4hoax

Is this article meant for Democrats. I think NOT

January 21 2014 at 10:54 AM Report abuse -3 rate up rate down Reply
a1usaindacrapper

WHEN TEA PARTY IS VOTED IN 2014 , OBAMIT~HILLARY~~SENILE NAZI PIGLOSI ALL GET REMOVED FROM OUR WHITE HOUSE IN HANDCUFFS N THROWN IN JAIL. !!!

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

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
mouse

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
k4jlp

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
a1usaindacrapper

YOU WANT TO REMOVE N PAY OFF YOUR DEBT~~>REMOVE THE MUSLIM CLOWN OUT OF OUR WHITE HOUSE IN HANDCUFFS. !!!

January 20 2014 at 10:09 PM Report abuse -6 rate up rate down Reply
1 reply to a1usaindacrapper's comment
david36rush

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
3 replies to david36rush's comment
skcarcomed_0

Evan, Evan he's not a man, he mooches off Uncle Sam as often as he can.

January 20 2014 at 5:39 PM Report abuse -1 rate up rate down Reply