1. Know where you stand.

Ignorance may be bliss, but it won’t solve your problems. The only way to get out of a debt predicament is to know how beholden you are to creditors. Where are you starting from? Look honestly, as painful as it may be, or may look. Once you’ve tallied your debt, add up your income and subtract fixed expenses. The amount leftover is money for discretionary spending and paying down debt. Now that you know where you are, stop. Stop using your credit cards. End the debt cycle so that every move from now on carries you forward.

2. Create a plan.

Now that you know where you stand, take a short self-inventory to determine the appropriate repayment plan. There are two main approaches to paying off debt.

2 Ways to pay off debt:

  • High to low. You pay off the card with the highest interest rate first. This gets the most out of every cent you send.
  • Big to small. You pay off the card with the biggest balance first, regardless of interest rate. This creates big results fast, but may not be the best bang for your buck.

3. Set aside some savings.

While it may seem counterintuitive, saving is a crucial aspect of a sound strategy to pay down debt. If you have three to six months of living expenses saved up, you’re golden; otherwise, build an emergency savings buffer while paying down your debt. Think about it: If you’re in debt, it could take you years to get out. During that time, you are bound to face an unexpected expense or setback. A savings cushion can keep you from falling back into the deficit-spending cycle. After paying your minimums, put half of any extra money into savings and half into paying down debt.

4. Pay more than the minimum.

Do you understand how much you’re paying if you only make minimum payments or how long it will take you to repay your debt? It is crucial to pay down more than the minimum each month. If you can’t afford to pay down more than the minimum, sit down to figure out where you can save more. Leave no stone unturned.

5. Improve your Terms.

Creditors may waive fees, reduce interest rates or agree to more flexible repayment terms. All you have to do is ask. Knowing how to ask is important, though. The better your credit, the more you’ll be able to save; however, no matter how bad your credit has been, you’ll often be able to make some improvement.

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