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What Are Some Strategies for Paying Off Debt?

Most people have been in debt at some point in their lives. The key to getting out of debt is to have goals, a realistic plan for reaching your goals and a strategy to implement good financial habits for the rest of your life. Here are some foolproof tips for getting—and staying—out of debt.

 

  • Do not accrue new debt. If you have a hard time avoiding your credit cards, consider a strategy like freezing them to prevent more spending.
  • Set a debt-free date as your goal. Calculate how to achieve it by using the debt management calculators at Bankrate.com.
  • Speed up the process by prepaying your debt. Prepay your credit card debt by continuing to make payments every month. Pay your credit card debt as quickly as you can. Always make more than the minimum amount and send extra payments when possible. This strategy also works for your mortgage—prepay it to shorten the term of your loan.
  • Avoid “credit repair” companies. Such companies can charge you a lot of money and do very little. Instead, search for a reputable non-profit credit counseling agency. Find one in your area at www.nfcc.org.
  • Negotiate lower payments. Your creditors may be willing to accept reduced payments if you are in a debt management program with a reputable credit counseling agency.

Note that if you lower your monthly payments or if you charge off any debt, you will receive a Form 1099 from the lender. You may have to pay taxes on the difference between what you owed and what your lender charged off.

Know your rights when it comes to debt collection.

You are responsible for paying your debts, but you still have the right to be treated fairly by debt collectors. The Fair Debt Collection Practices Act (FDCPA) applies to personal, family and household debts. This includes money owed for the purchase of a car, for medical care or for charge accounts. The FDCPA prohibits debt collectors from engaging in unfair, deceptive or abusive practices while collecting these debts.

Under the Fair Debt Collection Practices Act, debt collectors:

  • May contact you only between 8 a.m. and 9 p.m.
  • May not contact you at work if they know your employer disapproves.
  • May not harass, oppress or abuse you.
  • May not lie when collecting debts, such as falsely implying that you have committed a crime.
  • Must identify themselves to you on the phone.
  • Must stop contacting you if you ask them to in writing