7 Steps to Eliminate Your Debt
Scott Bilker

The quick way to shed debt is common sense: "Pay for everything in cash and don't incur any debt." That's easily said if you have a high household income and no kids. But not everyone has that luxury, and even those who do find it hard to resist the temptation to borrow.

I don't know anyone who purchased a home with cash. Other situations that arise -- like medical and family emergencies, unexpected car failure -- only add to the list of times when borrowing is mandatory. So the fact that you carry some debt doesn't necessarily imply that you've mismanaged your entire financial life.

But when your debt gets to the point where protesters are showing up at the UN demanding a reduction in your burden, it's time to consider a quick diet for debt reduction.

Step 1: Stop incurring more debt -- unless it's an emergency.

One thing I really hate doing is telling people how to spend their money. I prefer to help people identify the best lending deals. Unfortunately, the truth is that if you want to freeze your debt, you must freeze your spending, especially if you don't have the income to support that debt. No spending, no debt. Real simple.

Step 2: Evaluate your financial condition -- get a plan.

"If you fail to plan, you plan to fail," goes the old saw, and it's true. Creating a plan involves many steps, like taking a close look at every creditor you owe, understanding exactly how much it's costing you to have each particular debt, and reviewing your payment history with all creditors Did you pay on time? Who charges what for late fees? Etc.

Your plan must be a roadmap that takes you from debt to debtless. To do that you need to know how much your total debt is and how long it will take to pay it off, given your current payments. Once you know that, you can look forward to a specific target day when your debt is gone.

Step 3: There are money-saving options available so keep your eye out for those opportunities.

Ever notice that when you become interested in buying a particular car you suddenly see cars of that model driving around, where before you didn't see any? Well, those cars didn't just get there; they've been there all along. The same is true when searching for debt-reduction options. As you start to dig into debt management and closely examine your situation, you'll start seeing opportunities to save money, like offers for low-interest credit cards that you find in your mailbox almost every day.

Bankrate.com's credit card search engineoffers an instant look at the average rates on various types of cards, as well as links to the best credit card deals, the best credit cards for frequent fliers, the cards with the lowest intro rate, and much more.

Last year, banks mailed some 2.5 billion of these offers. Many of them will save you money if you transfer debt from a higher-interest card, but you need to read the fine print and be able to calculate if their offer is truly something you can use to your advantage. Stay tuned for future articles to learn how to evaluate those offers.

Step 4: TAKE ACTION!

Knowledge is useless unless you put your plan into action. Don't be lazy! Formulate your moneysaving plan today and follow through on it! Simply knowing the route from your home to your destination won't get you there until you actually start traveling.

Step 5: Track credit card offers and loan offers.

You know those low rate offers I was talking about before? Well, you need to track them and save them in a box or file. When you need to turn to another bank for cheaper financing, you'll have already done the research and know which banks to contact -- you may even be pre-approved for some. Also track offers from your existing credit accounts. They'll be the easiest to take advantage of since you already have a history with them -- if you've done it right, a clean, on-time payment history.

The difference the rate makes can be staggering. Say you owe $20,000 on a credit card at 18 percent and you want to pay off the whole thing in 10 years without ever borrowing another cent. You're looking at monthly payments of $360.37 -- a total of $43,244! But if you put that same debt on an 8 percent card, your payment is a much more manageable $242.66, and the $29,119 total saves you more than $14,000 in interest.

Step 6: Don't be hasty in closing credit-card accounts.

When you cut up your credit cards, you cut out your options. As long as your current credit-card accounts (and lines of credit) aren't charging you any fees for inactivity, then it's in your best interest to hang on to that account. What I do is put zero-balance cards in a file called the "credit-card graveyard." When they notice that I'm not using them and send an offer along that saves me money, I "exhume" them.

The problem with closing your accounts is that you're at the mercy of whatever bank(s) you decide to keep. That's the same as saying that you'll shop at one store no matter how good the prices are at other stores. Don't give any bank a monopoly on your business; keep your options open.

Step 7: PAY ON TIME -- no matter what it takes!

If there is sin in debt repayment, it is paying late. The late fees hurt you immediately, and would be better used to reduce your debt. They're also a strike against your future bargaining power. But most importantly, if you pay late you may not be able to get the best rates and deals when you need them most, like on a mortgage. In the long run, that kind of negligence can cost you thousands of dollars. I would, and have, borrowed money to make sure my payments get there on time. The result is that my rates have been under 8 percent APR for all my credit cards for over 10 years.

Debt management is a continuous process so stay on top of your situation and keep more of your money.