Stop using your credit cards as much.

Stop using your credit cards as much. This is another way of saying to live within your means. While you get your credit card debt under control, it's a good idea to rely chiefly on good, hard cash in order to pay off some of your debts. If you use credit in order to pay off debt, you're not really making a dent in your debt; you're just shifting your debt around.

• See if you can't get an advance from a family member or friend. Offer to pay interest, of course, and definitely draw up a contract so that the debt becomes a legally-binding agreement. Use some of this cash to begin to pay off your debt.
• Know that canceling your credit cards won't cancel your debt. You can cancel your credit card, but your debts will still follow you around, like death and taxes.
• Don't cancel the credit card with your oldest line of credit. Canceling a card with the oldest line of credit may make your credit history appear younger, thereby hurting your overall credit score.

Get a secured credit card if you need to build up your credit history. Secured credit cards work kind of like debit cards. You deposit a $300 sum with the bank, for example, and you'll have $300 credit limit on your secured card. Then use the card until you reach your limit. Replenish the balance and repeat until your credit score has risen.

Look for a secured credit card that charges 0% interest for the first 6 months, with no annual fees. These will ensure that you get the best bang for your buck.

• Beware of the high interest rate and various fees often associated with a secured card. Pay in full, on time, every month to avoid most of those fees.

Join a credit union. They're more likely to give you loans in the future than a regular bank.
Aim for a low credit utilization ratio. This is a fancy word for how much debt you put on each of your credit cards. If the limit of your credit card is $3,000 and your card has a balance of $1,500, you're using exactly half of your available limit, meaning that card has a credit utilization of 50%. A credit utilization of 20% or lower is something that you should aim for.^[5]
• You can actually shift your credit around to massage your credit utilization. Say you have two credit cards — one with a large limit and small balance, and another with a small limit and large balance. Shift the debt from the small limit/big balance card over to the large limit card. The debt won't make as much of a dent in the card with the larger limit.
Add good credit accounts to your credit files. When you add good credit trade line accounts to your credit profiles, you increase your credit score. If you add good credit accounts and have even one bad credit account deleted from your credit reports, your credit score could increase by as much as 80 points with just these two actions.


Decide whether to avalanche or snowball your debt. Total debt outstanding constitutes 30% of your credit score, so it's time to get your rating restored. Once you've decided how much you can pay against your debts, and negotiated any lowered payments, you must choose whether you're going to attack your debts one by one or piecemeal.
• Avalanching your debt, as it's known, means paying off your debt one by one, often starting with the debt that has the highest interest rate. Start off with the most money you can possibly afford. Use that money to pay off debt with the highest interest rate. When that piece of debt is fully paid off, start paying off the debt with the next highest interest rate until all your debt is destroyed.
• Snowballing your debt means paying off the lowest-balance debts first and closing them out before moving on to increasingly bigger debts. Snowballing can create an emotional victory early on, motivating the borrower to continue on his or her quest to financial independence.


If you can afford it, try to avalanche your debts instead of snowballing them. If you can focus on paying the highest-interest debt first, you'll actually find that you'll pay off your debt quicker, you'll save more money, and you'll get a better credit score at the end of the day. Although there's a psychological sense of gain in snowballing your debts, there's the very real financial gain of getting creditors off your back and reclaiming your credit score.
Consider borrowing against your life insurance in order to chip away at your debt. If you have a life insurance policy, think about borrowing against it. Borrowing from your life insurance policy will get you lower-than-commercial rates, giving you some wiggle room while you begin the serious push to financial independence. Yes, you will be technically borrowing money from yourself, but it's sound choice if you're left with no other option. Just be sure to repay the debt, as the debt. Plus, a little extra will be subtracted from the insurance policy payable to the beneficiary if you do happen to die.
 
Open two bank accounts. "What am I doing opening another bank account if I'm trying to get out of debt?" you may ask. Keeping two bank accounts, one for everyday expenses and one for repaying debt, is a smart way to force yourself to only spend so much. This eventually helps you dig your way out from a ditch of debt.
• Transfer all the money you need for everyday expenses, like groceries, gas, mortgage, school supplies, etc. into one bank account, based on your budget (see below). Only put enough money in here to satisfy your basic budget, so that you force yourself to use only the amount of money that you have set aside. It's okay to set aside money in this account for emergencies and savings, as long as they are actually used that way.
• In the second bank account, transfer all the rest of your monthly income. Use all the money in this account to pay off your debt, ideally by avalanching. At the end of each month, this bank account should only have a nominal amount — say $50 — in it. This means that the spending is going towards getting you out of debt.