Fast Way to Reduce Debt

Carrying a large amount of consumer debt is like carrying a financial albatross around your neck. You won't be able to save as much money for major needs like retirement or your kids' college education, and you'll probably pay a large amount of additional interest each month. Depending on your circumstances, there are some ways you may be able to reduce or even eliminate your debt quickly.

Tapping Savings

If you have money in a savings account that is earning only 2 or 3 percent interest, it makes financial sense to use some of the money to reduce a credit card balance where you're paying 15 or 20 percent interest. When using savings, be sure to maintain a balance of at least three months of income to cover any emergencies. Also avoid tapping into savings plans that issue penalties for premature withdrawals, such as a 401(k) or IRA.

Selling Property

Take stock of your personal or business property to determine if you own items you don't really need that may be of value to others. Sell a little-used vehicle or unload a vacation home that you rarely visit. Collectible items such as baseball cards, figurines and stamps may also be worth a good deal of money. If you own a business, sell your unused but functional equipment to small businesses looking to minimize costs.

Borrowing Against Life Insurance

If you've owned a permanent life insurance plan such as whole life or universal life for a number of years, the policy has probably accumulated a significant amount of cash. You can borrow from the cash value for any reason, including paying off debt, in the form of a low-interest loan. You are not obligated to repay the money, although any amount you still owe plus interest will be subtracted from the policy's death benefit when you die.

Selling Your Home

Depending on how long you've lived in your home and the current state of the housing market, you may be able to sell your primary residence for a handsome profit and purchase a less expensive home. You can use some of the profits to reduce your debt quickly. If your kids are grown and out of the household, you may no longer need the extra space. Before selling, be sure to get an idea of what you might owe in the form of capital gains taxes (see Resources).