Debt Repayment Methods

Personal debt, whether it be in the form of credit card debt, student loans or bank loans, is a huge problem in the United States. Students are borrowing thousands of dollars to pay the cost of tuition with no guarantee of finding a job after graduation and many under- and unemployed Americans use credit cards regularly just to get by. For those who already have debt and are in a position to start paying the money back, there are a few methods to consider.

Examine Finances

The first step in any debt reduction plan is to stop accruing debt. If the debt is in the form of student loans and you are still a student, you may not be able to focus on reducing debt until you have graduated and found steady work. In the case of credit card debt, the first strategy should be to stop charging on those cards completely. You will not be able to reduce debt if you are still adding to that debt. Examine your income and decide a dollar amount you can comfortably dedicate solely to reducing the amount owed on the cards. Take into consideration how much money you need monthly for living expenses, food, gas and utilities; then decide on a dollar amount to pay monthly toward reducing your debt and stick to it.

Credit Cards

Look at the interest rates on your credit cards.

In the case of credit card debt, people usually owe on more than one card. The first step to take is to stop using any of the cards and examine the interest rates. The card that has the highest interest rate should be the card you focus on first. This will save money in the long run, even if that card is not the one with the biggest balance. Most often, the card with the highest interest rate is a store charge card. Store charge cards typically have exhorbitant interest rates that the merchant will not reduce. These may be cards you can do without. An average person should have one to two major credit cards in order to maintain a decent credit score and in case of unforseeable emergencies.

Student Loans

Student loan debt can be consolidated.

Once you've graduated, whatever agency lent your student loan money will put you on a repayment schedule usually based upon your income. If the situation is such where you have multiple lenders, it may be beneficial to consolidate those loans with one lender. This locks in an interest rate for all loans for the duration of the loan. Unconsolidated loans are often subject to interest rate fluctuations and usually increases. When considering loan consolidation, consult a loan advisor to determine if this is the best course of action for you. If you decide not or are unable to consolidate, always pay off private student loans before paying federal. Private student loans always have higher interest rates and cannot be put into deferment if you should fall on hard financial times in the future and are unable to make the payments.