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interest. Don't forget to include all debts here, even money you owe friends and family and their terms.

2. Prioritize your debts
You will make at least minimum payments on all your debts. However, to pay off your debts you need to accelerate your payments. The best way to do this is to pay off your highest interest debt first. Generally this is credit card debt, especially department store credit cards. These cards can have interest rates of 25% or higher! By paying down these debts first you will save these larger interest payments. For example if you have two loans for $1000 with one at 10% and one at 5% interest, they will cost you $100 a year, and $50 a year respectively. If you pay off the 10% loan first, you will be saving twice as much on interest payments. That is money you can use to pay down the 5% loan even faster.

3. Always pay off the highest priority smallest debts
Small debts are faster to pay off. The money you use to pay those old minimum payments and interest with can now be applied to the new highest priority debt. You can see how the more debts you pay off, the faster you can pay off the next debt. To illustrate this, let's say you have $100 a month free to reduce your debt. You have 3 debts each for $1000 that need each take a minimum payment of $50. It will take you 10 months to pay off the first debt (assume that $50 matches interest exactly). When you do, you free up that extra $50. Now you have $150 free to pay down debt #2. You can pay it off in less than 7 months. Now you have $200 free to pay down the last debt in 5 months. See how each debt was paid off faster than the last one because of the extra money that was freed up? It only took 22 months when it looked like 30 at first that's 25% faster than expected!

4. Keep a record of debts you pay off
There is nothing more motivating that paying off a debt, unless it's paying off your last debt. In addition to motivation, you will have a tool to help you resolve any problems you might have with loan or credit card companies. Its also useful for debts you pay off to friends or family members since often these debts have no paperwork and can easily be forgotten or mixed up.

That last example might have scared you. Yes, it will take time to get rid of your debts. The more money you owe, the longer it will take. That is why it is very important that you not add to your debt and that you free up as much money as possible. These two things will help you pay off your much faster than otherwise.

Learn more about this author, David B Hitchcock.
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