How to pay down credit card debt – once and for all

Do pay necessities first: food, clothing and shelter

Always pay the minimum on secured debts. A “secured” debt is a loan that is secured by a tangible asset – such as a car or a home. If you do not pay these bills on time, you could lose the asset.

Do pay student loan debt

Student loan debt can not be discharged, even in bankruptcy; it always must be paid.

Do have a simple budget in place

Based on that, determine a fixed monthly amount you can pay toward your debt until you’ve paid off all debt. This amount should be more than the combined minimum payments on all credit cards.

Do decide if the avalanche method is right for you

Make minimum payments on each debt except the one with the highest interest rate. For that, pay the minimum plus any extra you can afford. Repeat this process every month until that debt has been paid off. Then, keep paying the same monthly total – but take every dollar you were using to pay off the highest-interest debt and put that towards paying off the debt with the second-highest interest rate. Keep following this strategy until you’ve paid off all debt.

Do consider the snowball method

Many people prefer the satisfaction that comes with this method, in which you will pay off the smallest debt amount first. Pay the minimum on all debts. Then apply any remaining funds from your overall allocated amount toward paying off the debt with the smallest balance. After you pay off that debt, continue paying the same monthly amount you started with. Follow the same strategy as before: Pay the minimum on all debts, but pay all your remaining funds to knock out your second-smallest debt. Continue until all debts are paid off.

Do not hesitate negotiating

You can try calling creditors and asking for temporary hardship status. Some creditors may work out payment plans if you have had a true temporary hardship. For instance, you lost your job but now have a new one, and previously paid your bills on time.

Do not rule out debt negotiation (settlement)

For those with serious debt and who can not make required minimum payments, debt negotiation – now regulated by the Federal Trade Commission – may be of help. These businesses work on a consumer’s behalf to lower the principal balances they owe. It can be a long process, and is best suited to people who would otherwise need to consider credit counseling or bankruptcy.

Do not rush to consolidate debts

If you have many accounts with high interest rates, consolidating debts may help. This simply means combining debts to have one interest rate and one payment to focus your efforts. Some people borrow from a friend, a bank or an online lender, or get a home equity loan or a vehicle title loan to pay off credit cards. A debt consolidation service can sometimes help, but some services have high fees, and many rely on loans secured by personal property (e.g., house or vehicle). If you can’t make the payments, you risk losing that property.

Do not ignore balance transfer offers

Sometimes, it can make sense to transfer balances to a new credit card to get a lower interest rate. Read the fine print carefully, check that the transfer fees do not cancel out savings, and make sure you can pay off the balance in full before the expiration date for the rate.

Do not assume credit counseling can help

Most people do not understand credit counseling. It is not non-profit in most cases, and only reduces interest rates. Credit counseling agencies set consumers up with a debt management plan that reduces the monthly payment. They can do this because they have pre-arranged agreements with credit card companies to lower interest rates on existing debt to a creditor-issued “concession rate.” This may not be the best option for people with large amounts of debt, as lowering interest rates just isn’t going to help that much.