Being in debt may not make you feel smart, but getting out of debt sure can. Jump-start your debt reduction efforts with the following smart money moves:
Survey the Damage
Before you can do anything about your debt, you need to know what you're dealing with. Grab a piece of paper and a pen, and write down all of your debts. This includes credit cards, charge cards, mortgages, second mortgages, home equity loans, car loans, personal loans, medical bills and any other debts that you've accrued.
Beside each debt, jot down the associated interest rate and minimum monthly payment. Now, total up all of your entries, and you have a clear picture of your current debt load.
Ask for a Lower Rate
Next up . . . tackling those high interest rates. Look over your list again, and highlight any debts with an interest rate that exceeds 15% – that's too much to pay if you're serious about getting out of debt.
To bring your rates to a more reasonable level, just dial up customer service, and ask. Most banks will happily lower your interest rate to keep you as a customer—particularly if you have a history of paying on time. If a bank seems reluctant to agree, mention some of the offers that you've received in the mail. Nobody likes to lose business to a competitor.
Run into a bank or two that refused to budge on its interest rate? No need to worry; that just means it's time to make good on that threat to take your business elsewhere. Research the transfer offers on your other credit cards to see if moving your debt to one of those could net you the rate that you’re looking for. If necessary, branch out your search to include new offers that you receive in the mail.
Note: When transferring a balance, the interest rate is important; but not the only detail to consider. Before accepting a transfer offer, find out if there are any fees involved, and if the rate you’re being offered is fixed or promotional.
Tackle One Debt at a Time
After several rounds of calls, your debt load should now be at the lowest interest rate possible. Pat yourself on the back for being a smart credit consumer; then, get on to paying off those debts.
Identify the debt on your list that you'd most like to pay off. It can be the debt with the highest interest rate or even the one that irks you most—the choice is yours. Then, proceed by making the minimum payment on all of your debts, and applying any additional money to your chosen debt. Continue to do this until all debts are paid.
It may take you a while, but you're sure to feel pretty smart when you reach that debt-free finish line.