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Find Freedom From Debt

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4. Negotiating terms. One of the easiest ways to lower your payments is to tell the credit card company you want to consolidate your loans through another lending institution if you can't get the interest rate down on the card you currently have. Many customer service representatives are authorized to lower the interest rates right there on the phone for you, and you could save anywhere from several hundred to several thousand dollars.

5. Personal loans. This is an option only for those who have undamaged credit and who would qualify for an unsecured loan. The interest rates won't be as low as some of the other options, but they are usually less than the 20 percent-plus you are now paying the credit card company.

6. The old standbys. For a qualified financial counselor, do a Google search for Consumer Credit Counseling Services (CCCS). They are nationwide.

Be sure you call the nonprofit organization and not a for-profit lookalike. These are different from the for-profit debt consolidation companies in that their services are free (and confidential). Their initial consultation (by phone or in person) usually lasts an hour and will help you decide if you need a debt-management plan. To use their services, you must fill out a form that details all your expenses.

CCCS will walk you through the experience of seeing these stretched out over the course of a year. They will tell you if you can pay off your debt without their help.

Face the Facts 

A critical part of assessing your situation is to list pertinent information on columnar paper. You'll need to order a copy of your credit report from one of these national credit bureaus: Experian (experian.com, 1-888-397-3742); TransUnion Corp. (transunion.com, 1-800-888-4213); or Equifax (equifax.com, 1-800-685-1111). After you receive your report, use it as an information source for the following:

  • Creditors
  • Balance on each account
  • Minimum payment
  • Number of payments left
  • Interest rate
  • Due date

When this information has been documented in one place, it will be easier to ascertain your true debt load and develop a systematic plan to get out of debt. This is something you can do at home or have CCCS do in their offices.

Cut Costs 

The most effective thing you can do to resolve debt is reduce your committed expenses (housing, utilities, transportation, groceries, phone and so on). But for right now, focus on those monthly expenses that are not fixed.

It's not enough to cut costs if you're not committed to applying these savings to credit card debt. The savings will just be absorbed into spending elsewhere unless you earmark these cuts to go to specific debt.

A more dramatic approach would be to reduce your fixed expenses by trading down in a home and/or car in order to get out of debt. This is an issue that you will need to decide based on your specific situation.

Use Credit Responsibly

You want a card that charges a low, fixed interest rate (not merely a temporary introductory rate) and has no annual fee. Don't be deceived by some of the "reward" cards. For example, most cards that offer frequent-flier miles require that you earn 25,000 miles (at one mile per dollar, that's $25,000 spent) in order to buy one ticket (which averages $250 to $300).

For a list of credit cards by category (low rate, no annual fee and others), go to bankrate.com or cardtrak.com. Other tools available to help you get the card that is right for you are getsmart.com or creditcardgoodies.com.

Pay Down the Principal 

My plan for debt reduction was based on solid principles and some of my great-grandma's common-sense strategies. Much of the best financial advice is on the Internet or compiled in inexpensive books.

You can follow some simple steps and watch your debts diminish. Here are a couple of strategies to pay down the principal rather than merely managing the interest:

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