Paying Down Credit Debt

According to the U.S. Census Bureau, 70 percent of adults in the U.S. have at least one credit card. Fifty-eight percent of those people maintain a balance on their credit card, with a median balance of $3,000. Some people carry even greater balances. If you owe creditors money, you have several options for paying down your debt. The right approach depends on your financial situation and your personality.

Highest Interest First

Concentrate on the credit card or loan with the highest interest rate since it costs you the most money each month. If the bill is large, it could take several years to clear it, but doing so will free up more money to attack lesser debts. Once you've paid down much of the high interest debt, you may be able to roll it over to a card with a lower interest rate.

Smallest Balance First

Attack your smallest balance first to achieve the satisfaction of clearing one bill quickly. One less bill in the mail each month can give you a psychological boost as you focus on clearing up the next smallest balance in your debt pile. The drawback to this approach is that you're still paying high interest on larger balances, but many people find clearing the smallest debts first motivates them to keep going.

Consolidation

See if you can consolidate your debts into one note with one monthly payment. Avoid debt consolidation companies, which often charge fees but don't guarantee success. Instead, contact a nonprofit consumer credit counseling agency, which can often negotiate deals with your creditors for lower interest rates. Or, if you have a home equity line of credit, use it to pay off your other obligations and then just pay the credit line each month. You should only use this last approach if you're sure you'll be able to make the monthly payments. Fail to do so and risk losing your house.

Tips

Paying off your credit debt requires making more than the minimum payment each month and refraining from adding new charges to the account until it's cleared. Put all your resources toward clearing the debt. Take a part-time job or sell items around the house to generate extra income. Look for ways to save money, such as taking your lunch to work or canceling cable, and put that money toward paying off your debt.