Basics, Debt Reduction

Getting Out Of Debt

I love this time of year.  I love giving gifts, hanging out with family, and enjoying time off from work.

What I don’t love about this time of year – and what many families struggle with after this time of year – is credit card debt.

So, let’s put together a plan of action, so that when those bills arrive in January, we’re ready to pay off that credit card debt – and be in a position to pay cash for gifts, next year.

Make a list of all creditors – with balances and interest rates.

Pick a plan of attack – smallest balance first or highest interest rate.

There are pluses and minuses for each approach.  I prefer to attack the smaller balance first, because I am super-motivated when I eliminate an entire debt, super-fast.  However, if you prefer, attack the highest interest rate – which makes lots of sense, especially for you math-nerds.

Make minimum payments to all accounts.

It is important to get and stay current with all accounts.  Credit scores can be dramatically affected by late payments, missed payments, or less-than-minimum payments.

Build a small cash-reserve.

This may slow down your debt reduction, just a bit, but having a cash-reserve will prevent the use of credit cards for minor unexpected expenses.  For me, even when I was getting out of debt, I always kept between $1000 to $2000 in my super-convenient online savings account.

Make extra, principal-only payment to the first creditor on list.

Continue to make minimum payments and extra, principal-only payments – until the first debt is entirely eliminated – and a creditor can be removed from the list.


Seriously.  Call a friend.  Shoot me a tweet @NCN.  Do something.  It’s an awesome feeling to let someone know that you have eliminated an entire debt.

Get back to work.

Take the amount that you were sending to the first creditor – and apply that amount to the next creditor on the list.

This is called “debt snowballing” and is a very popular method for debt reduction.  Why is it popular?  It works.  The momentum gained from eliminating one debt is transferred to the elimination of the second debt.

Continue this process, of making minimum payments, eliminating creditors, and snowballing payments – until you are debt free!

Throughout the process, consider the following optional steps –

Take on another job – even temporarily – to increase the amount available for debt reduction.

Sell some stuff – on eBay or at a yard sale – to increase the amount available for debt reduction.

Transfer a credit card balance – to take advantage of a lower interest rate.

Cancel unnecessary services – even temporarily – to increase the amount available for debt reduction.  Think television, monthly subscriptions, etc.

As we head towards the New Year – resolutions time for many – this post may come in handy.  Be sure to bookmark it – and use the handy links below to share via social media.  Be blessed.