If you want to get out of debt, you need three things - a plan, some money, and lots of determination. I can’t provide you with the money or the determination, but I can give you some ideas for how to create an awesome plan.

  • List your creditors, your current balances and your current interest rates.
    • If you want to rid yourself of those pesky smaller balances, regardless of interest rates, list your debts smallest balance to largest balance.  This method is commonly referred to as the Debt Snowball.
    • If you want to ensure that you will pay the smallest amount of interest, over the course of your debt reduction, list your debts highest interest rate to lowest interest rate.  This method is commonly referred to as the Debt Avalanche.  (Source: Consumerism Commentary)
    • If you simply have a debt that you want pay off first, regardless of its balance or its interest rate, list it first.  Then, list your other debts accordingly.
  • Make minimum payments to all of you accounts.  For your credit cards, this would be the minimum payment listed on your monthly statement.  For your automobile loan, this would be the monthly payment.  Make a note of these initial minimum payments.

  • Make an extra payment to the account at the top of your list.  When sending payment, write “apply to principal” on the memo line of your check.  Using online bill pay (initiating payments from your checking account to your creditors) is a simple way to send extra payments, without having to deal with envelopes or stamps.

  • Continue sending minimum payments and your extra payment until the first debt on you list is paid off.  Then, combine your extra payment AND the minimum payment that you were sending to the first account, and send that combined amount to the second account on your list.  This is where the snowball / avalanche effect really starts to work.  Do not relax.  Remember how I mentioned that you needed a plan, money, and determination?  This is where the determination really matters.  It would be so easy to spend the minimum that you had been spending to the first account, but then you would lose the impact of the snowball.  Maintain your intensity and stay focused!

  • By now, you have this figured out.  Once you pay off the second debt, send the extra payment and the two original minimum payments to the next debt on your list.  Continue combining these minimums and extra payments until you are debt free!

  • Want to do even more to ramp up your debt reduction?  Don’t send one extra payment, send multiple extra payments.  Keep your eyes open for ways to reduce your interest rates.  Consider calling your credit card companies and asking them to reduce your rates.  Carefully consider consolidating credit card debt from higher rate cards to lower rate cards.

Click here to view the No Credit Needed Online Debt Reduction Guide or here to view and download the No Credit Needed Debt Reduction Guide E-Book.