Fastest Way to Get Rid of Unsecured Debt

Unsecured debt is any debt that does not have any type of collateral associated with it. This type of debt includes most credit card debt, personal loans and student loans. Collateral can be anything from a deposit you made in a savings account to your own home. The fastest way to get rid of unsecured debt depends on your specific financial situation, the account balances on your loans and cards, and your other monthly bills. When you get rid of your unsecured debt, you avoid finance charges from the accounts and lower your credit utilization. Lowering your utilization can increase your credit score.

Instructions

1

Make a list of all your unsecured debts. Include the balance and interest rate next to each one. Unsecured debt includes credit cards, store cards and installation loans that are not backed by actual property. Omit mortgages and car loans. Since these loans are backed by your house and vehicle, they are considered secured loans.

2

Write down your monthly budget and income. Include the minimum monthly payments of your unsecured credit accounts in the monthly budget. Subtract your necessary expenses. After allowing for desired extras and emergency funds, determine how much can realistically go toward paying down your unsecured debt.

3

Make minimum payments on all but your highest interest rate account. Use all extra money to pay down that specific account. Once this account is paid off, turn your attention to the next highest interest account. When you apply your payments to credit accounts in this manner, you cut down on the finance charges you pay on each credit account. You do not want to ignore all of your other credit cards in order to pay down one card, as late payments and fees negate the benefits from paying down your chosen card.

4

Start with the smallest account, if you would rather see faster progress in paying off specific loans and cards instead of cutting down on the finance charges. You may not save the same amount as you do by going by the interest rates, but you may be more motivated with this method. You can switch over to paying the accounts down by interest rate later on, or stick with the smallest first method throughout your debt repayments.

5

Withdraw enough money to completely pay off your debt from savings, if you have it. If you can pay off your debt at one time, you'll eliminate the finance charges that are costing you money.