How to Pay Off a Debt

Couple paying bills online.
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With credit cards, auto payments, student loans, mortgages and other consumer debt, it's easy to fall behind in payments and jeopardize your credit rating for years. Paying off a single debt can put you on the path to better credit management by improving your financial planning skills and increasing your fiscal discipline. Use planning and research to identify extra money you can apply to the debt and create a timeline for repayment.


If possible, renegotiate the debt to lower your payments, reduce what you owe or stretch your payback time. A call to your credit card company might result in a reduced interest rate, which gives you a lower total payback amount. You can also try to reduce what you owe with an early payoff. For example, if you owe a family member or a local business $1,000, they might be willing to take $500 or $600 now, satisfying the entire debt, rather than waiting months to get the full $1,000. Paying more than the minimum monthly amount on a debt accelerates your repayment and reduces interest payments.

Create a Budget

Overspending in relation to a change in income is one of the top 10 causes of debt, according to consumer finance website Bankrate. Overspending often results from not planning and tracking your expenses, especially discretionary purchases. It's hard to know where you can cut back if you don't know what your expenses are. For example, if a couple skips one $40 trip to the movies per month, that adds up to about $500 annually. Finding ways to cut one $5 expense and one $10 expense per week can save another $800 each year.

Create an annual budget with estimated monthly amounts for all necessary expenses, including rent or mortgage, utilities, groceries, phones and other living expenses. Use last year's credit card and bank statements to identify your probable expenses. Write down every charge you made or check you wrote last year for discretionary items -- things you didn't need to purchase -- and total that amount. Use this calculation to identify areas where you can reduce your spending and apply the savings to your debt-repayment plan.

Sell Assets

Go through your closets, garage, basement, attic and kitchen to find assets you can sell at a yard sale or online. Selling items at a big discount can net quick cash and protect your financial future. You might be surprised that you have items you can quickly sell for hundreds or thousands of dollars. If you have investments you can liquidate, determine the potential loss you'll take from using that money to pay down your debt compared with the amount of interest you'll save.

Use Credit

It might not make sense to take on new debt to pay current debt, but if you're in danger of defaulting on the first amount and damaging your credit, swapping debt might be an alternative. For example, if you have a $5,000 credit card balance with a high annual interest rate, consider opening a new credit card account that lets you transfer the balance interest-free for 12 months or longer or at a much lower rate. Financial guru Suze Orman recommends switching cards as often as every six months if it reduces your interest payments.

If you have equity in your house and a steady income, look at home equity loan to eliminate a debt that has a much higher interest rate. You might be able to interest family and friends in a loan using a win/win tactic. If you have a credit card balance with a 20 or 30 percent interest rate, offer to pay a family member or friend 10 percent on the money he lends you. This reduces your total payment amount and gives him a return he might not be able to get elsewhere. Negotiate the percentage as a one-time amount on your total debt.