by Simon Wright

Created on: September 01, 2008

It's a sad fact that very many people these days are saddled with debt. This debt includes personal loans, credit cards, overdrafts and mortgages. Back in 2001, the total US household debt just from credit cards was a whopping $560 billion, averaging out at $11,000 per household. (1) By 2008, however, the figure had risen still further to $790 billion! (2)

We've certainly come a long way from the never a lender nor a borrower be' ethos and, in some ways, it is good that the stigma that used to be attached with debt has lessened in recent decades. However, the availability of credit facilities has spiralled and there's no doubt that there are many people these days who find themselves buried under an avalanche of monthly debt payments. The real danger arises when you are struggling just to pay off the accruing interest, never mind pay back any of the capital amount.

Becoming debt free may look a million miles away but I think most people would agree that it is a desirable financial goal. The good news is that, for many, it will be achievable to pay off the debt within just a few years and this article looks at how you can achieve this.

Let's look in turn at the various types of debt and how to minimise them:

1. Credit cards
Switch to a credit card with a lower rate. Some offer 0% for 6 months' type deals. Switching to a better credit card will make you a substantial saving.

Endeavour to pay off your credit card in full each month. If you can't do this, then at least make sure that you pay back the interest and try to also pay back a bit extra. This will start to pay off the capital amount and prevent extra interest from adding to it.

2. Overdrafts
The real danger with overdrafts is if you slip into an authorised overdraft position. Unauthorised overdrafts come with very high interest rates and penalty fees. Authorised overdrafts, on the other hand, are usually fee free and have a lower interest rate. Your overdraft-related goals should therefore be:
Make sure you don't exceed your authorised overdraft limit. This will ensure that you don't incur fees.

If you are finding it difficult to prevent your balance from dropping below zero, then ask the bank for an authorised overdraft. This will provide a buffer zone against incurring fees but you should only use the authorised overdraft when you have no other alternative.

Pay off any unauthorised overdraft as a top priority. The fees associated with unauthorised overdrafts make them even more costly than credit cards, so

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