If you want to tackle your debt once and for all, you need to follow the two P’s: prioritize to pulverize! Here’s how:
Prioritize: Pay down the debt with the highest interest rate first, which is usually your credit card. This is because the interest will pile up most quickly on this kind of debt, and leave you paying more in the long run. Typically debt ranks in this order:
Credit cards: because they have the highest interest rates, i.e., this form of debt will add up the fastest.
Mortgage: because your home is only a solid asset if you actually own it.
Student loans: because they are long-term debt and thus will eat into your retirement savings.
Set a schedule: Make a timetable to pay off your debt and don’t drag it out! Schedule your debt payments to automatically come out of your paycheck each month so you don’t even have a chance to spend that money on something else. It doesn’t hurt as much if you never see that money in the first place. Give yourself a realistic timetable to pay it off, but don’t set comfy deadlines. Paying debt off isn’t a comfy thing. Don’t forget: the longer you drag it out, the more money you’ll be shelling out for interest. And again, just like a regular diet, you’re cheating yourself if you slack.
Get your rates down:Call your credit card company and ask for a lower APR. Negotiate everything: medical bills, cable bills, and of course your credit card rate! Don’t accept the sticker price on anything. Creditors have an incentive for you to pay the debt back even at a lower rate, especially if it is “unsecured debt,” like credit card debt, since they don’t have any collateral to take if you don’t pay them back (unlike with “secured debt,” such as a mortgage, which is backed by something the lender can take away if you don’t pay them back (á la a house in the case of a mortgage). So try and try again. You might also qualify for a hardship plan, which could lower your rates or payments or both.