Recommended Debt Reduction

Debt is common among consumers, and debt reduction should be as well. If high-interest debt is tackled first, money can be saved along the road to becoming debt-free. Certain types of debt should be paid off more quickly than others, and with the right plan of attack, debt can be eliminated faster than you ever thought possible.

Credit Cards

Pay more than the minimum payment when paying your monthly credit card bills. These types of debt are unsecured, meaning there is no collateral for the lender to take in case of default, and depending on your credit score, the interest can be over 20 percent. Even if the interest is low, it is wise to pay more than the minimum required monthly amount to slowly eliminate the principal.

Many credit card companies will not charge interest on balances less than thirty days, so if you do use your credit card, you should try to pay the entire balance within that period. This way, no interest will accrue and you will have paid off the entire balance. If you cannot, it is recommended that you pay at least 20% over the minimum payment to more rapidly pay off any balance that you may have accrued.

Mortgage Debt

Pay off your mortgage quicker than its life. If you can pay extra on your mortgage, not only will you own your house sooner than expected, but you will save thousands of dollars on interest. Because mortgages are secured loans, their interest amounts are relatively lower than unsecured debt. If you can pay down your mortgage quickly, you will actually make money compared with paying the stated amortized payments for the entire term.

If you are considering a mortgage, stay within your budget, which should be no more than 33% of your monthly gross salary as a payment. If you can, finance for fifteen years. Although the payments will be higher and you may end up with a less expensive home, the savings are substantial.

Education Debt

Student loans should be paid within 10 years. There are many programs to help students with the loans they have acquired during college or graduate school. Although they are helpful in a bind, if you do not pay the minimum, you will add to your balance rather than subtract. It is essential when reducing your debt to pay above the minimum to lower your balances. If you consolidate loans, you may see some savings as they may be able to lower your interest percentage during the consolidation process.