How to Eliminate All Your Debt and Not Consolidate

Americans owe a lot of money. According to the Federal Reserve, consumer debt levels have been running to more than $2 trillion since 2005; among those debtors are millions of Americans who want to owe less and pay less interest. One solution is debt consolidation; for example, taking out a second mortgage at a low interest rate to pay off higher-interest loans. That requires you to have a house, equity in the house -- value not covered by the mortgage -- and good enough credit to get a loan. If consolidation isn't an option, there are other ways to tackle debt.

Instructions

Paying Down Debt

1

Document your income and expenses. Put together information about where you spend your money, what your debts are, how much you pay in interest a month and to which creditors, and whether any bills are overdue. If you've no experience at tracking your finances, file every receipt and bill you get for a month and then go over them.

2

Look for places to cut spending. For example, Women's Health magazine suggests if you have a big cable package and don't watch many channels, switch to a smaller selection; if you don't use all your cell-phone minutes, drop to a cheaper package. Any money you save can be used to eliminate more of your debt.

3

Negotiate with your lenders. If you have a debt that's two to three months late, the Financial Web website states, your creditor has probably classed it as a bad debt, and may be willing to accept partial payment to get it off his books. If you have a mortgage, talk to your lender about modifying it -- lowering the monthly payments by reducing interest or stretching out the mortgage duration, for instance. Credit counseling or debt-payment services may be able to help with this.

4

Make a payment plan for speeding up the rest of your debt payments, Financial Web recommends. Using your budget analysis, target the accounts with the highest interest and start paying them off. You can either schedule regular extra payments every so often or devote any windfalls -- bonuses, gifts, overtime -- to debt reduction.

Filing for Bankruptcy

5

Decide whether you want to file Chapter 7 or Chapter 13. Under Chapter 7, most of your debts are wiped out, but the court may sell some of your property to pay your creditors. Under Chapter 13, you pay off as much debt as possible over three or five years, the Nolo legal website states, and then most of the remaining debt is cleared. Chapter 7 is only available if your income falls below a certain level.

6

Download bankruptcy forms and instructions from the U.S. Courts website and file a petition. You can use the website to identify the federal court covering your district. The court will charge a couple of hundred dollars or more for the filing fee.

7

Draw up a plan for eliminating the rest of your debts. Bankruptcy doesn't wipe out everything, Nolo states -- child-support and tax debts have to be paid, for instance, and Chapter 13 won't erase mortgage debt -- but you can clear out your credit-card debt and use the extra money you have each month to work on eliminating your other debts.