Pay more than the minimum
One simple thing to do that will show positive results within several months is to always pay more than the mandatory minimum monthly payment on your credit card or cards. Most debt reduction experts suggest that you double the minimum payment. If the minimum is $50, increase it to $100. This can literally shave years off your payment and save you hundreds of dollars over the course of a year. For this strategy to succeed, you need to put the card in cold storage and stop using it. If you are an impulse buyer, cutting the card up might be a wise decision.
Transfer your high interest balance to a card with lower interest
Pull out your credit card statements and rank them by the rate of interest that you are being charged, from lowest to highest. How much credit is available on your card with the lowest interest? If you have enough room, seriously think about transferring as much as possible from your highest credit card. This is a great way to reduce your long term debt. Why would you want to maintain a high balance on a card that costs you 20 percent when you can put it on a card that costs you 12 percent? Take a long, hard look at these numbers to determine if this is the way you want to go.
"Snowball" your monthly payments to accelerate debt reduction
If you are unable to transfer an entire balance from a high-interest to a low-interest card, continue to pay the minimums on all cards except the one with the smallest balance. Aggressively commit to making as large a monthly payment as possible to pay it off quickly. When that card is paid in full, move on to the next card and repeat the process again. Remember, this plan will only work if you deep six these cards as soon as you have reduced the balance to zero.
Raid your piggy bank to draw down your debt
You could withdraw a portion your savings and put this sum toward debt repayment. It is a difficult decision to make but it does make sense. Your money in the bank is earning a pitiful amount of interest while your credit cards are killing you financially over the long term with that compounded interest rate of 18 or 20 or maybe even 22 percent. Eliminating that debt will free up more cash so that you will be able to pay yourself back and possibly increase the amount you place into your savings account.
Borrow against the cash value of your life insurance policy
If you own a life insurance policy with a cash value, you can borrow against it to reduce your outstanding debt. The downside is that if you die before you finish paying back this loan, the outstanding balance plus interest will be deducted from the money payable to your survivors. You are essentially placing a bet on your own mortality and you may also have your survivors saying nasty things about you at your funeral.
Consider obtaining a home equity loan for the purpose of debt reduction
Given the hammering the housing market has taken in recent years in many parts of the country this is not such an easy task as it was several years ago. Yet if you own your own home outright or still have a significant amount of equity, this is an idea worth considering.
There are two potential advantages in doing this. First, you are paying off long term debt that is compounding monthly at 18 or 20 percent or more in exchange for a home equity loan that could cost you 4 or 5 percent. If you itemize your taxes, you might also qualify for a nice federal income tax deduction, which would put more money in your pocket.
Try to negotiate new payment or interest terms with your creditors
So let us presume that your back is pressed really tight against the wall. You've been out of work or horribly underemployed for ages, you have exhausted your savings and other investments, your friends and family members cross the street when they see you coming and no longer return your phone calls, and you have had nothing but bad luck at the tables in Las Vegas or buying lottery tickets.
Inform your creditors about your situation. Ask for a new and lower repayment schedule and request a lower interest rate. Appeal to their desire to continue to receive checks from you each and every month. If they resist your overtures, you might want to mention that if a deal cannot be done, you might be forced into bankruptcy. Faced with this prospect, even if you know you are bluffing and they don't, that may motivate them to do what they can to avert a total loss.
