How to Pay Off a Debt

Owing money to a credit card company, bank, friend or family member can keep you from meeting your other financial goals. By following the six simple steps provided below, you can pay off that debt quickly and easily and be on your way to financial freedom.

Instructions

1. Decide which debt to pay off first. If you have more than one debt, you should pay off the nondeductible debt first. This means paying off credit card debt before reducing your mortgage. Always start with the debt with the highest interest rate.

2. Stop adding to the debt. This may be as easy as not using the credit card that you are trying to pay off. It may mean that you need to renegotiate with your lender to see if, in return for paying off the debt, the lender will stop adding interest or penalties to your balance.

3. Pay more than the minimum payment. To pay off a debt quickly, always pay more than you are required to.

4. Look for a lower interest rate. Look at your interest rate to see if it makes sense to take out a lower-interest-rate loan such as a home equity loan, retirement plan loan or credit card balance transfer to pay off the debt.

5. Ask for help. If you are struggling to pay off a debt, your friends or family may be willing to help, either by making a gift or lending you money on favorable terms.

6. Move on. If you've been struggling to pay a debt and don't see how you can possibly do it, it may be time to declare bankruptcy. Keep in mind that a bankruptcy can negatively affect your credit for up to ten years. Consult with a bankruptcy attorney and an accountant before making this decision.

Tips & Warnings

• Don't ever pay money to set up an alternative payment plan. You can pay off principal quickly, and for free, by just making a higher monthly payment than you normally do. You do not have to pay a fee to do this.

• Always document your loan payments, whether by printing out statements or saving canceled checks.

Resources

• Use the Debt Reduction Planner at CNN's Money page.