That is an awesome first picture! lol

I managed to get out of the little non-school debt that I was under by using my tax-returns to pay it all off. Granted, it was only a few thousand dollars, but at the time I wasn't making much money. I think the real trick is to simply not get into debt more than necessary (school/house/car). I don't use credit cards for anything other than to pass reimbursable expenses through. I do have a lot of school debt that is still mounting, but that's really more of an investment than anything. Living within your means is the trick. Avoid going to bars, etc. if you can't afford it. It's all about smart money management and restraint on spending. If you under a mountain of debt, you shouldn't be frequenting bars or concerts or shopping malls. Stick to the minimum, get out from under the debt and stay away from credit.

I had over $20,000.00 in cc debt and back taxes from being young, stupid, and having some bad habits. I took part in a plan with a credit counseling company (which in hindsight I do not recommend, it looks horrible on your credit report) and managed to pay it all off in 6 years.

My credit score in 2001 was around 500, it is now in the upper 700's after much hard work. Just keep in mind two things, you CAN do it, and it is TOTALLY worth the effort, if only for the peace of mind. Make a plan and stick to it, some great advice in the article there!

I'm always open to new or interesting ways of cutting debt but it always come back to the same ideas: be frugal and pay your bills on time until they're paid off. Or, in other words, don't spend money on unnecessary stuff and pay off your bills. More and more, I'm faced with this reality so I can empathize.

@BoomerFive: One other byproduct of all that work, my wife and I now own our cars, and we REFUSE to buy anything on payments (except maybe a future car and the house). If we don't have the money, we save it up or we go without.

I actually had to swallow my pride and move home to my parents house for a while until my debt was under control. After that I moved back out and I have no problem paying double payments on all my school loans to get them paid off as quick as possible. Also the only credit card I have now is for emergencies, and when I do use it, I pay it off immediately. I never want to be that far in debt ever again.

Between student loans, a car loan and a couple credit cards my wife and I were in debt $41k at the beginning of this year. I was really tired of being in debt so this was the year we decided to do something about it.

We used the snow-ball method and quickly paid of my student loan with our income tax return, we then sold a car and paid cash for an old beater with the difference. Then I transferred the credit card debt to two different cards both with 0% interest for awhile.

While I was doing that, about 3 months ago I got a second job waiting tables at night and have earned $4100 doing that. That is sitting in an online savings account earning 3.5% interest while my credit card debt is costing me 0% interest. Once I have enough in that savings account to pay off one card, almost there, I will do that then start saving up to pay off the second card.

Of course we stopped using credit cards this year and have postponed or eliminated any large purchases.

We have paid off almost $20k in debt doing this and will only have one 0% interest rate credit card and my wifes loan left by next month.

It feels good to have a plan, stick to it and see progress. It will feel even better to be debt free in about a year from now.

If I had a credit card with a major bank, I would try to make the payment in person at one of their branches with real cash, not a check or transfer from my checking account online. Just the mere sight of seeing that balance go down instantly, or tomorrow (instead of the usual 2-4 day delay for an update) motivated me immensely. On top of that, my checking account already reflects the deduction. The micropayment system played well into this, too. Although, I burned gas doing this, so I don't know how efficient all that trouble was in the end.

I had $30k in debt and killed it in 4 years by transferring balances to low interest cards using 3.99% and 4.99% offers from each and then paying more than the minimum on each, concentrating on the 4.99% first and then the 3.99% until it was gone. I had it set as auto-billpay twice a month on payday. My FICO score went from the 600s (I always paid on time but had a lot of debt) to the high 700s.

It's going to take time, but you have to make a commitment to do it.

I also made sure to keep a fun fund during this time. Took European vacations, etc but never ADDED to the debt. I had a separate credit card for purchases that would be paid in full with EACH paycheck. Not each month, not with each bill, every paycheck. I go online each week and schedule a full payment with each paycheck date.

We paid off $14,000 using the snowball method. It took about 18 months but was so worth it. We made a budget and found a lot of money we were spending in other places that we decided that we could move over to the debt category. Just get started and you will catch the fever!

My husband and I also used the snowball method, paying off the highest interest cards first. We are now debt free and we both have credit scores above 800. The biggest thing for us was to never miss a payment. As long as we've been married (16 years) we have always at least made that minimum payment on each card. After we would pay off a card, we would ALWAYS call and cancel the card. It felt great and it has not hurt our credit scores. Now we have one card that we use for purchases and we pay off the full balance every month. It feels wonderful not to be in debt to those banks!!

@algal924:
I should also add that if another one of our cards had available credit and a lower interest rate, we would transfer debt from the higher interest card to that card. Some of our existing cards would have balance transfer offers that we would use too, but I was not comfortable with getting new cards just to transfer balances. Quite frankly, it scared me - so we didn't do that. I have no idea how long it took to finally get out of debt, so don't give up even if it seems hopeless.

Wow, what synchronicity. I was looking and looking and looking for that Excel spreadsheet only 2 days ago. Thanks for posting it again!

@Toof_75_75: You beat me to it. I'm still laughing!

Wow. I only have a little debt compared to you guys. ($13k including student loan).

I think I'm gonna go freeze the one card that I do have.

I like the WaMu method, become CEO for a few weeks until you get fired. With the $18 million you earn inside a month, you should be able to make a good dent in your debt.

Repeat until the gubmint pays you to step aside.

Madness? This...is...Debt Snowball!

I'm about to start this process myself. My wife and I got caught with her graduating law school (and thus having in excess of $170,000 in student loans) and not finding work as quickly as expected. Couple that with our house having a sinkhole, and we got behind on a LOT of things. We've recently settled with the insurance company, paid off the house, and we're about to pay off all our credit cards in full next week. We'll be left with her loans, 2 car payments, and standard monthly bills (water, gas, electric, insurance, etc)

Question: what is the best way to increase our scores? Other that our vehicles and her student loans, there isn't any more debt to pay off.

I can't stress enough the power that comes with finding even a small way to add extra money to your finances each month. If you can find a way to do five extra hours of work a month in your chosen career field, on the side, you'll have extra money that makes the debt go down faster. That's what I've done and it's taken about $10k off my debt in the last six months.

Also, focus on the revolving debt (read: credit cards) before the other debt if you can. They're seen as more "junk" debt by lenders, and they're usually higher in interest fees.

And don't add more to the debt, either. That makes it tough.

@algal924: That is only the snowball method if the highest interest cards coincidentally happened to carry the lowest balance. Well, maybe not coincidentally, as I'd probably avoid having the largest balance on the higher rates, but I still wouldn't really describe it as the snowball method in that case.

My wife and I have managed to knock out $25,000 out of a $35,000 total over the last eight months using the snowball and some other aggressive short-term strategies (nix the 401k for now, up the tax exemptions, sell the car and loan for a cash car, etc.). Using the snowball method has worked well! I can honestly see the end of the tunnel and saving the six months' emergency fund and then back to funding retirement and school for the kids. My advice? Fund your own bailout...that's the only sure thing.

@Norcross: Why do you want to increase your Credit Scores? If you aren't planning on getting any more loans any time soon, there's no point in it.

To answer your question - pay off your bills, and stay alive. The longer you've had credit, the better your score. That's the biggest thing holding me back - short credit history (I'm only 24).

@Norcross:
I feel you on the law school debt. It's a pretty bone crushing amount of money to attend law school, and can be tough to find good paying work if you didn't go to a top top top school. I've still got 2 years left and will be sitting on about $150k when I'm done.

We have been following the snowball method (Dave Ramsey) for about a year and it is working well for us. I just wanted to say that I saw that debt snowball spreadsheet posted on here a few months back and it is far and away the best I've ever seen. I like that you can adjust the amount of the snowball each month, unlike all the others I've seen, which will only allow the same snowball amount each month.

I just want to echo the guy above about not using a credit counseling service. I tried that about 12 years ago and it was the worst experience ever. It made my credit report even worse because even though some credit cards would not negotiate a lower payment, the counseling service still paid the lower amount, so every month I was getting penalties unless I did my own separate payment. Ended up having to declare bankruptcy anyway, which finally came off my credit report a little over a year ago.

So pick you're own pay-off method and/or negotiate with credit card companies yourself.

Need your advice fellow consumerists. My brother in law is in a lot of debt. His biggest expense each month is his fancy sport car he was stupid to buy. He has to pay a total of $700 each month (car payment + insurance) plus premium gas. His job requires him to drive like 60 miles a day. Yeah, very stupid. Anyway, I'm always telling him to get rid of his car but actually I don't know how he can do that. What is the process of getting rid of a car that you still owe $15,000 on? You can't give anyone the title until you've paid the dealer in full so how does he go about doing this? Just work it out with the buyer? Thanks for any advice...

@Toof_75_75: Yes good picture but Ben needs to be more careful with the pictures and comments. A girl elf surrounded by 4 elf guys with "debt hole" and "We're going to give it to him" written underneath. Ben or myself has issues.

There are probably a gazillion sites on tips on budgeting out there, but I find it is always good to keep it simple and try to keep with the mantra of "Pay yourself first", by that i don't mean pay yourself before you pay your creditors, I mean don't loose focus of your reserves.

For example, you have 100% of monthly budget, drop x% amount into your long term savings, drop x% amount into your short term (highly liquid) savings, and drop x% amount into your "fun money" account. By informally budgeting for your "fun money" account you can save and blow this money without guilt (on yourself, or on others). Your long term savings are there for the house/retirement, your short term is there so you don't have to fall back on the CC when you need to drop a load on new tires on the car, or when the timing belt goes, and the rest is there to cover remaining debt.

before you know it the debt will be gone.

For some people (including myself) it is easy to save money when you see it as a bill that you have to pay. Sure it is only psychological, but whatever helps you do it.

Whatever method you try, the worst way to pay of a credit card is to pay the minimum. AVOID THIS AT ALL COSTS!!!

Every penny counts when you're paying off credit card debt.

You may also want to consider a consolidation loan from your bank/credit union. My CU was nice enough to give me a very low interest rate based only on my signature (no credit check required!).

@alexander:
First off, the dealer usually doesn't retain the title unless they are also the lender. That aside, assuming it's a normal loan, the bank usually retains the title until the loan is paid off. It's not necessary to exchange the title at the time of the sale, and in many cases, it's simply not possible. Some states (KS) actually keep the title if there is a lien on it. So when the car is paid off, the bank notifies the state, who releases the title to you. You then mail the title to the buyer. Usually the buyer has 30 days to register the car, so as long as they have the title within that time, there is no problem. A bill of sale is sufficient to show the transaction took place in the case of any shadiness on the part of the seller.

@Pylon83: yeah, it's rough. luckily, she went to a good school in Florida. that being said, there are some good federal programs that'll help if you're working for the state (she's a prosecutor). income based repayment + loan forgiveness

@InfiniTrent: we have a 1 year old son, we had to get rid of that first house (the one that is sinking). we plan on purchasing another home in the next year or so

I highly recommend using one of the non-profit debt consolidation services. I remember the day I realized that what I owed every month was less than my monthly paycheck. I called a consolidation service and they went over everything with me. It does show up on your credit report, but it's supposed to show as neutral, not negative. 4 years later I was done paying it all off. Now, 6 years later my credit score is in 700s and some of the consolidation is still on the credit reports. This was just my personal experience with it, and the company I used doesn't exist (at least by the same name) anymore.

It was such a stupid position to get myself into. I really wish I had taken some basic budgeting and finance courses in high school or college, but I don't remember them being available.

I actually took a second job... not only did I have extra cash to pay down my credit cards, I had no spare time to spend money ;).

I now am unsecured debt free, with a reasonable car payment (sub $225) and an even more reasonable mortgage that I split with my wifey. Now all I need to do is stop flushing money away on my roth IRA :)

We did the snowball and paid off $55,000 in debt in 12 and half months.

But in addition to a plan to pay off your debt, I suggest that you also:
(1) Fund a small emergency fund of $1000 - $2000 first. Something will come up while you are trying to pay off your debt (for us it was a bad AC that had to be replaced and then later a big car repair) and you don't want to add more debt while you are trying to pay off your debt.
(2) Stop using credit cards for anything. No I don't think credit is evil but if you are in debt you have issues with managing money and continuing to use credit will just slow down or derail your debt pay down project. Its just too easy to spend more, more, more with credit.
(3) Track all of your spending for a month and see where the money leaks are, plug up those leaks and put that money towards your debt. Eventually you should create a spending plan or a budget.

Good luck to you!

@alexander: I second what Pylon83 said. I have sold a few cars this way. In CA the bank/lender holds the title until it is paid off then they mail it to you. I got paid from the buyer and we each got a bill of sale as a receipt. Then I turned around and paid the loan off. Once I got the title in the mail I signed it over to the buyer and mailed it to them.

@Norcross: Gotcha. There's not a lot you can actively do to improve your scores (other than pay off debt), but what you can do is resist the urge to close credit card accounts.

If you can control your spending, leave all old credit card accounts open. That helps your average account age greatly.

@SadSam:

Add use the snow flake method too, every time you get your hands on a bit of cash use it to pay off your debt. We made at least two payments per month for our snowball (each pay period) and if I had extra cash I'd make a couple of other payments.

Yup, have him sell the car and pay off the balance of the loan with the proceeds. Then buy a car with CASH and avoid the nasty car payment.

Getting rid of the sports car will also lower his insurance rate greatly. He should ask his insurance agent about any available discounts, and should also solicit quotes from four or five companies in order to negotiate the best rate on insurance.

@shamalama: That's a valid long-term strategy, but if you're making 3-4% in your savings and paying 6%+ on your debt, it doesn't make much sense to save beyond an emergency fund until most/all of the debt is paid... at least the high-interest, non-deductible kind. Obviously you can't wait until you've paid your 30-year mortgage to save, but budgeting for long-term savings when you have a 15% credit card with a balance would be folly.

@jscott73: That's awesome. I'm just about to enter a similar situation. It's nice to hear a real success story.

Good luck with it.

Read the book "The Total Money Makeover" by Dave Ramsey...with these methods(and two part time jobs) I was able to pay off $29,500 in 9 1/2 months making around 70K a year. Beans and Rice, Rice and beans...works every time.

First thing first. Know where your money is currently spent. Chances are you are very well aware of where the big ($100) purchases are made and even the not so big ($25) purchases but go thru your old bank statements and classify each purchase and tally the totals. You may be surprised how those $2-$7 purchases add up over a month. I was amazed that I previously spent $400+ each month on fast food and restaurants. Ridiculous! If you can't avoid fast food, try getting water and save $1-3 each meal. You can only change habits if you know you need to change them.

Next, pay yourself first. Get with your employer and decide that you are going to direct deposit say $100 each check into your savings account (checking is no good because it's too easy to get to). At the end of each month, use the money you paid to yourself to pay towards the principal (not interest) of your highest interest debt. Of course this is in addition to the minimum required payments.

It is well worth your time to call your credit card companies and ask for a lower rate. Be realistic though. Don't ask for 0% if you haven't made 3 payments. Ask for a little help and most companies will be glad to both keep you as a customer AND to keep you paying on time.

Find ways to save more of your income each month then make it a priority to pay down debt before anything else. It feels great to have zero debt. And for heavens sake don't use a credit counseling agency. You can do it yourself.

Good Luck!

@JN2: No you can't do that....that's my plan

NC keeps the title as well. The other thing for your brother in law to check is what the value of the car is now. If he is driving 60 miles a day the mileage he has racked up may have him owing more than the car is worth.

For getting and staying out of debt you need 2 things:
1.)Spousal Support (if married.)
2.)Attendance of 1 of 2 courses; Crown Ministries' "Handling Money God's Way." OR Dave Ramsey's "Financial Peace University." (they are basically the same, its just that one is more Biblically based than the other.)

If married, it will do no good for one spouse to attend the course and not the other (see step one above.)

I am not a supporter of snowball unless you need a mental kick in the pants.

I used CCCS.net with great success, my interest rates were very high at my worst point and they got them to a manageable level. While I was in CCCS I was also able to buy a house and 2 cars. It took 3.5 years to pay off just over $32k in CC debt - obviously we weren't killing ourselves to do it quickly if we were also buying a house and cars.

Several posters have recommended transferring debts to credit cards with teaser rates of 0% - 4%. I think you'll see that those rates are not going to be available again for a long time. Better come up with a different strategy.

Thanks for the advice guys. I'm glad to hear is not complicated.