The Smartest Way to Pay off Your Debt

If you’ve been hit by the economy over the last few years, you may have found yourself having to live off of credit cards just to make ends meet. Many people had to turn to this method of financing their lives just to keep the utilities on and food in the cupboards. If you’re like others, you have now found yourself buried under a mountain of debt that you don’t know how to climb out of. If you’ve considered bankruptcy or debt consolidation, you should know that, with hard work, you can pay off your debt on your own. Here are five steps to take:

1.Gather Your Bills

If you’ve been throwing your bills into a drawer simply so you didn’t have to look at them, it’s time to pull them out. Spend an afternoon with your bills, your paychecks or other source of income, and a calculator. The first step to getting yourself out of debt is to find out exactly how much you owe. You don’t have to create a detailed budget, but you do have to total all of your debts and all of your income.

2.Put them in Order

If you want to pay off your debt quickly and efficiently, you’ve got to know which bills to pay off first. Typically, you won’t be able to pay off your mortgage or auto loans, but you can pay off your credit card debt. Separate the bills that you have control over and those that you don’t. You should have your mortgage, auto and utility statements in one pile, and you should have your medical bills, credit card statements and any collections notices in another pile. Sort through your credit card statement pile and put your bills in order from highest interest rate to least.

3.Make Minimum Payments

You should immediately begin to make any minimum payments that are required by your creditors. If the money that should be going out is more than the money you have coming in, contact your creditors and ask to adjust your payments. These people would rather get some money than no money, and they are normally willing to work with people who are trying to pay their bills.

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4.Make a Bulk, Monthly Payment

Any extra money that you have during the month should be sent to the credit card company with the highest interest rate, in addition to your minimum monthly payment. By doing this, you’ll end up reducing the amount that you ultimately pay because you will be paying for fewer months, effectively cutting down your interest rate.


This method of paying off your bills is called the snowball or avalanche effect. Once you have paid off your card with the highest interest rate, start to pay off your second card. Pay the minimum payment that you’ve been making, add the minimum payment of the card that you just paid off, and include the extra money that you were using to pay off the first card.

You will continue on in this manner until all of your cards are paid off. The great thing about this method is that you will pay off your cards more quickly than you would have otherwise, and you’ll never pay a dime more than you did when you began to repay your bills.

For some people, bankruptcy is the only logical option. If, however, you can find the money in your budget or even get a second job, you can use this method of debt repayment effectively. Instead of taking ten or more years to pay off your debts, you can easily pay them off in just a few years.

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