Smart Debt Reduction Moves for Beginners

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Being in debt may not make you feel smart, but getting out of debt sure can. Jump-start your debt reduction efforts with the following smart money moves.

Survey the Damage

Before you can do anything about your debt, you need to know what you're dealing with. Print out a copy of the Debt Load Worksheet, and use it to list all your debts. This includes credit cards, charge cards, mortgages, second mortgages, home equity loans, student loans, car loans, personal loans, medical bills and any other debts that you've accrued over the years. If you owe someone money, it needs to go on your worksheet, so you can start formulating a plan to pay it off.

Beside each debt, jot down the associated interest rate and minimum monthly payment. Now, total up all of your entries, and you'll have a clear picture of your current debt load -- even if it isn't pretty.

Ask for a Lower Rate

Next up . . . tackling those high interest rates. Look over your list again, and highlight any debts with an interest rate that exceeds 15% – that's too much to pay, if you're serious about getting out of debt.

To bring your rates down to a more reasonable level, just dial up customer service, and ask. Most banks will happily lower your interest rate to keep you as a customer—particularly if you have a history of paying on time. If a bank seems reluctant to agree, mention some of the credit card offers that you've received in the mail recently. Make it clear that you'll transfer your balance, if they can't work with you. Nobody likes to lose business to a competitor, so this will usually get them to reconsider. Ask to speak to a supervisor, if the first person tells you no.

Transfer Balances

Don't sweat it if you encounter a bank or two that refuses to lower your interest rate. That just means it's time to make good on your threat to take your business elsewhere. Research the transfer offers on your other credit cards to see if moving your debt to one of those could net you the rate that you’re looking for. If necessary, broaden your search to include new offers that you received in the mail, as well as any that you're able to find online. is a great place to compare credit card offers and read unbiased reviews.

Note: When transferring a balance, the interest rate is important, but it's not the only detail to consider. Before accepting a transfer offer, find out if there are any fees involved, and if the rate you’re being offered is fixed or promotional. Most banks charge a transfer fee. It's usually a percentage of the amount transferred.

Whatever you do; do not close your old credit cards, if you've had them for a while. This will impact your credit score negatively. Account age is one factor that goes into determining your credit score, so it's smart to hang on to your oldest cards. Just use them once or twice a year (and pay them off right away) to keep the accounts active.

Tackle One Debt at a Time

After several rounds of calls, your debt load should now be at the lowest interest rate possible. Pat yourself on the back for being a smart credit consumer; then, get busy paying off those debts.

Determine which debt you're going to pay first, second, third and so forth. Many people choose to tackle their debts with the highest interest rates first, but if it'll motivate you more to start with the smallest debts, do that.

Once you've settled on an repayment order, make the minimum payment on all of your debts, and apply any additional money that you're able to come up with to your chosen debt. Continue to do this until the first debt is paid off. Then, move on to the next one.

To maintain your motivation, be sure to hang your debt worksheet somewhere you'll see it often, so you'll be reminded of your goal and your progress towards it. Crossing through your debts as you pay them off can be especially motivating.

It may take you a while, but you're sure to feel pretty smart when you reach that debt-free finish line