How to Become Debt Free

The average American family has about $15,000 in credit card debt, in addition to car payments and possibly a mortgage. At the average rate of 14.9 percent for credit card debt, that $15,000 racks up over $2,200 in interest expenses every year, if it's not paid off. Making only minimum payments means it can time more than nine years to pay off those balances. You can work hard to eliminate your debt by either paying the debts off or through settling the debts.

Instructions

Pay The Debts Off

1

Write down all your debts, the balances owed and minimum payments in order of the highest interest rate first.

2

Make a list of all your other financial obligations and payments such as rent, food, gas, entertainment, clothing and utilities. Add up the expenses.

3

Total your net income from all sources. Subtract the expenses from your income. This is your discretionary income, or the amount you have available to pay down your debt. If it isn't a significant amount, say at least $100, you will need to cut expenses to find additional funds to pay down debt.

4

Sell any assets that aren't necessary for day-to-day living. Apply the proceeds to the unsecured debt with the highest interest rate.

5

Pay the amount of the discretionary income every month to the unsecured debt with the highest interest rate. Pay the minimum payment on all other debts. For example, you pay $400 to Debt A and $100 to Debts B through D. When the debt with the highest interest rate is paid in full, pay down the next highest interest rate debt. You would have the $400 you used to pay on Debt A and the minimum payment of $100 for Debt B, or a total of $500 to pay on Debt B. When Debt B is paid off, you have a total of $600 to pay down Debt C.

6

Continue until all unsecured debts are paid off. Use that debt payment about $700 in the example, to pay your secured debts such as a car payment.

Debt Settlement

7

Compile a list of all your unsecured debts in order of the largest balance owed first.

8

Sell off any unnecessary assets.

9

Make a list of your savings, bonds, stocks and other investments. Decide how much of your investments and cash you're willing to use to pay down the debt. Combine that with the proceeds of the asset sale.

10

Call each creditor starting with the largest balance first. Negotiate with a supervisor to come up with a total they will accept as payment in full. Demand that the creditor send you a letter verifying the amount. Your chances at settling for less money than you owe are better if you are 90 days or more behind in your payments.

11

Pay the creditors the amount you negotiated as payment in full.

12

Require confirmation from each creditor that the debt has been paid in full.

13

Use the funds you would have paid to the creditors you've settled with, to pay off any other secured debts.