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Pack away your debts with the payment push

Want to know what the big moneymaker is for credit card companies?

Fees (read: your money). Last year, 31 percent of the industry's profits came in the form of late-payment fees, over-limit fees and the like.

If you are like the average American family, your total credit card debt is around $8,100. If you were to stop charging altogether and pay only the minimum amount due on this amount, it would take about 30 years to get rid of it.

No one wants to hand over cash to the credit card companies, but by paying only the minimums or falling behind a couple of months here and there, you are lining their pockets with profit and limiting your opportunities for enjoying life. to the rescue. Use the "Payment push plan" to methodically dissolve your debts. Here's how it works.

1. No new debt Put away the credit cards; borrowing is no longer an option. Even when you know you deserve something, you can't have it until you can afford to pay cash for it.

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2. It's a head game A daily affirmation helps to program your mind for success; post this on your bathroom mirror: "By living frugally, we will have the cash necessary to pay off our debts in ___ months instead of ___. The $______ we save in interest will be put into savings so we will always have enough to pay the rent and weather any lean periods in the future."

Check out this calculator to determine how quickly you can be debt-free and how much you'll save in interest fees. Use the facts to write your bathroom-mirror mantra.

3. Prepare a debt repayment schedule Use our debt repayment worksheet. Include columns for the name of the debt, balance due, interest rate, current payment and "Payment Push" period.

Rank the debts by interest rate, with the highest one on top. Add a line under each debt to describe how you're going to fund the "Payment Push."

The "Payment Push" gets applied to one debt at a time: Continue to make the same monthly payments on all debts except the one getting the "Payment Push."

If you'd like a worksheet prepared for you, check out our Debt Adviser calculator.

4. Start at the top Apply the "Payment Push" strategy to the debt on the top of the list: All extra, available cash is used to pay down the debt with the highest interest rate, first. That includes raises, bonuses, belt-tightening and that $20 bill that unexpectedly popped up.

Push hard at the rest of them. When the first debt is paid off, use the cash that is freed up to pay down the next debt on the list.

Be on the lookout for new ways to cut costs and bring in more money. The sooner a debt gets paid off, the sooner you can push hard at the next one on the list.

(Looking for some cost-cutting strategies? Check out these great tips for living frugal while still enjoying life.)

-- Updated: Dec. 7, 2004
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Managing your debt

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