Contrary to what some academics might tell you, there is no such thing as “good debt.” Let’s say that again (read it out loud): THERE IS NO SUCH THING AS GOOD DEBT. True, some debt is worse than other debt, but it’s never “good.”
The truth is: you will not feel free until you are debt-free. The debtor is always slave to the lender. Besides, it feels pretty amazing to have no car payments, no credit-card payments, and no student-loan payments looming in the shadows of your lifestyle.
Gather your data—bills, credit reports, credit Score, etc.
Make a list of your debts and income.
Lower your interest rates.
Pay more than you have to pay.
Earn more money.
Spend less money.
Create a budget and debt pay-off plan stick to them.
Rinse and repeat.
Avoid adding more debt. If you want to lose weight, you don’t eat more calories, right? Same with losing the debt. Put your credit cards on hiatus (and certainly don’t apply for any new cards or loans). Use a debit card for purchases instead. This forces you to spend only the money you actually have in the bank.
Itemize current debts. Write down the balance, interest rate and minimum payment due on each account. (You don’t need to include the primary mortgage on your home unless you would like to pay it off early.) Add up your minimum payments that must be made each month, then figure out how much more you have available to help reduce the principal. Minimum payments just keep your account current with interest owed. They don’t help reduce the principal which extends the term of the loan.
Focus on one account at a time. This is your core strategy in paying off debts. You’ll apply all the money you have beyond the minimum payment obligations to just one debt. Logic—and math—will dictate that you focus on paying off the debt with the highest interest rate first. The sooner you get that paid off, the less interest charges you’ll pay and the more money you’ll have to pay off your other debts. This is the quickest way to pay down debt, and it makes a lot of sense for highly motivated people. But if you’re not in the highly motivated camp, financial guru Dave Ramsey suggests thinking about snowballs.