Paying Down Debt on Your Own by Debby Fowles

Once you realize and accept the fact that you have too much credit card debt, the question is, what are you willing to do about it? The first step is to put the credit cards away, or better yet, cut them up and cancel them. Then consider the following options to see which ones might work for you.

Use Your Savings or Sell Something of Value

If you have something of value, consider selling it. You may have some stocks or mutual funds you could cash in. How about those savings bonds Uncle Herbie gave you every year when you were a kid? Do you own a collection of some sort that has value?
If you're earning less than 3 to 4 percent interest on your savings account while paying 12 to 21 percent on credit cards, you may need to use your savings to pay off debt in order to prevent ruining your credit. Try to leave yourself a savings cushion even if you can't keep a full three months' worth of basic, no-frills living expenses.

Use the Equity in Your Home

Using the equity in your home may be another option. If interest rates are lower than your current mortgage rate, and you haven't yet damaged your credit, you may be able to refinance and roll your debts into the new mortgage. If that's not an option, you might be able to get a home equity loan or line of credit to pay off your other debts. Rates on mortgages and home equity loans are much lower than the rates on most credit cards, so besides the obvious slash in the interest rate, you may be eligible to reduce your interest costs even more by deducting the home equity loan interest from your taxes. Don't forget that even if you can deduct 28 percent of mortgage interest if you're in the 28 percent tax bracket, the other 72 percent still comes out of your pocket.
Exercise extreme caution when you consider borrowing against the equity in your home. If you get into trouble financially due to job loss, illness, medical bills, or divorce, you may not be able to make your mortgage payments and the lender may foreclose on your house. Don't jeopardize your most valuable asset if you really can't afford the increased mortgage payments or if you haven't made changes in your spending habits and credit use. Using equity in your home to pay off consumer debt once may get you ahead, but you can't keep going back to the well.

Use the Credit Crunch Method

This method of paying down debt goes by a number of different names, but whatever the name, the strategy is the same. It seriously reduces your interest expense, which could be 90 percent of your monthly payment if you've been paying the minimum, and it allows you to pay off your balances sooner.

If you drive an expensive car, consider getting a less expensive one. It's not just that the monthly payment is higher; it's the repairs and maintenance, special tires, gas, and insurance. Drive a reliable, inexpensive car for a few years and apply the savings to your credit card balances.

First, to really get a handle on your debt, develop a written plan. Prepare a schedule of your debts, listing the creditor, the balance due, the interest rate, and the current monthly payment. Rank the debts in descending order by interest rate (highest interest rate first, lowest interest rate last). Each month, pay the minimum balance on all credit cards except the one with the highest interest rate. Pay as much as you possibly can on this card each month until it's paid off. Use all available money for this payment including overtime pay, tax refunds, bonuses, money generated by reducing expenses, and your bottle deposit money.

Find out how long it will take to become debt-free and how much you'll pay in interest by making the minimum monthly payments by using the Debt Reduction Planner calculator in the personal-finance section of CNNMoney (www.cnnmoney.com).

When you've paid off the first debt, pause briefly to pat yourself on the back, and then start in on the next debt with the highest interest rate. Pay as much as you possibly can each month, including the amount you were previously applying to debt number one. Continue to pay the minimum balance on the others. Keep moving down the list of debts until they're all paid off. This is the only time you should ever pay the minimum balance on any credit card.