Debt simply means that money was transferred between two parties. It implies that at a future date the loan will be repaid according to the repayment terms. Every time an item is bought we immediately go into debt. If the item is small, we can generally pay immediately and not see any long-term debt. Of course, there are many larger items that we all need but cannot pay for with cash. It causes us to go into debt for months if not years in order to repay.

Debt is not a terrible thing to avoid at all costs. Some people feel comfortable paying for everything right up front. Drive used cars, rent an apartment and pay for school once you have the money for it. All items that we buy either appreciate or deprecate in value over time. Buying a brand new car loses could lose 10% in value the second it leaves the dealership’s parking lot. At that point, if you sold the vehicle, the value of the car would not even pay for the remaining balance due on your auto loan. Even if the driver uses the vehicle for several years and finally sells it, they may still sell upside down which means they did not receive enough money from the sale to cover the loan. Perhaps you need to take out an additional loan to cover the original auto loan. This scenario is a great example of bad debt. A great financial rule is to never go into debt to buy something that loses value over time. One could make an argument that if you wait long enough the value of the car would start to appreciate again. This could happen after waiting several decades. Investing that money into bonds during that same period could result in smarter investment.

On the other hand, good debt is buying an item that appreciates over time. Upon sale, you will have money to pay off the loan and receive additional money to pocket. There are many examples of good debt including buying some homes in a buyer’s market. Working out the math on buying a home to see if you will make money in end is complicated. You can deduct many things including mortgage interest but if you are buying in a seller’s market and selling in a buyer’s market, you may turn good debt into bad debt. The alternative is renting where of course, nothing is tax deductible and you throw rent money away each month. For most people who own a home and fall in the 25% tax bracket, they throw away 75% of the interest they pay each year so there is certainly a trade off. Figuring out if taking on a house debt is more financially healthy than renting is complicated but it could help you decide which one makes more sense.

As college tuition rises, more students want to work first and then go to school so they can pay for it. Perhaps for them the sound of debt is scary but looking at your salary difference should be the reason behind the decision. For example, if you make $20,000 ($10 an hour) before college and $50,000 ($25 an hour) after college that is a difference of $30,000 a year. By waiting to go to school and make money before you go you are actually costing yourself $30,000 every year you delay graduation. You can also look at the ROI, return on investment. College could put you in the red lets say $60,000. If you make $30,000 more per year it will only take 2 years of post college employment to cover you debt. A 2 year ROI is certainly good debt and it will pay off. Simply looking at the word debt without doing some math could result in passing up an opportunity to take on good debt.

Remember to look at the long turn implications of your decision and always observe if buying will incur a debt that will pay for itself and net you a profit.

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Wanting to eliminate credit card debt is a good first step, but it takes much more than want to get it done. When you are serious about eliminating your credit card debt, you will find that a few simple steps will get you on the way to being debt-free.

Step One: Know How Much You Owe

Before you can even begin to eliminate your credit card debt, you need to know how much you really owe. So many people are so overwhelmed by the thought of their credit card debt that they don’t want to know how much they actually owe.

By avoiding the idea of how much you owe, who you owe and how much you are paying in interest, you are able to ignore the fact that you have a problem.

Start by getting a complete picture of how much you owe, how much you are paying in interest and fees and what your monthly payments are. Make a list of all of your debts, from highest interest rate charged to the lowest. List the account, contact info, balance owed, interest rate and monthly payment. This is your master debt list.

Now sit down and look at your monthly income and monthly spending. Chances are that you don’t have much extra money to devote to paying off your credit card debt. You’ll have to find the money to make the extra payments.

Step Two: Cutting Your Spending

You can’t just make a plan to pay off your credit card debt and not cut your spending. The reason you have debt is that you spend more than you have. No matter how much money you put towards paying off your debt, you will not be able to eliminate the debt if you don’t stop spending.

You simply have to stop using your cards. Put them in a safe deposit box or in a gallon of water in the freezer. Cut them up if necessary. The key is to not carry one with you. You can’t use them if you don’t have them.

Look at your spending very carefully. It is actually quite easy to find ways to trim your spending. If you shop around, you can cut many of your necessaries, such as your insurance premiums, your cell phone plan, your cable and internet services. You can find ways to cut your utilities and grocery bills. If you pay attention to your spending through a budget, you will be able to cut back considerably.

And remember, if you can’t pay with cash, you can’t buy it.

Step Three: Lower Your Rates

Take back out your debt master list and start taking steps to lower your credit card rates. The higher your interest rates, the longer it will take you to pay off your debt.

Start by calling each of your credit card companies and asking for lower rates. If you have consistently paid your bills on time, you shouldn’t have any problem getting a lower rate. If you haven’t, you may not get a lower rate. But it never hurts to ask.

If you can’t get the company to lower your rate, then you should start shopping around for a card with a lower rate and a balance transfer feature. Many cards offer low initial rates for balance transfers. You can use these to your advantage and pay off your debt in a faster manner. But once you transfer your balance, you should cancel your old card or cut up the card. You don’t want to continue to use it.

Step Four: Use the Snowball Method

The most money and time effective way of paying off your debt is the snowball method. Start by adding as much as you can to your highest interest debt and get it paid off quickly. During this time, pay at least the minimum payments on each of your remaining credit cards. When you have paid off the first card, put the amount you were paying on it towards the second card. As you go, you build momentum and are able to pay each card off faster and faster. You snowball your debt away.

Martin Lukac http://www.MartinLukac.com , represents http://www.RateEmpire.com , an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, investing, taxes and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information. RateEmpire.com also operates a financial portal #1 American Financial, found at http://www.1AmericanFinancial.com

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