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Are you tired of paying credit card bills for things you no longer own? Do you wish you had an extra $200 in spending cash rather than a car payment? Does it depress you to think you might be among the people who end up dying in debt?

It doesn’t have to be that way. 2015 can be the year you climb out of the debt hole.

Money Talks News finance expert Stacy Johnson has a simple three-step process to make it happen.

Step 1: Get It in Writing

You can use an Excel spreadsheet, a typewriter or good ol’ pen and paper. Heck, use a glitter marker, for all we care.

However you do it, you need to write down each and every debt you owe along with its minimum payment and interest rate. If you have a credit card with a promotional rate or a mortgage with an adjustable rate, make a note of when those will change.

Your list should include all of the following, if you have them:

  • Credit cards.
  • Mortgage.
  • Home equity loans.
  • Vehicle loans.
  • Student loans.
  • Personal loans.
  • Loans from family members.
  • Payment plans for the doctor, veterinarian, mechanic, etc.
  • 401(k) loans.

Once you have all the debts written down, total them up. That number may have you thinking either OMG, or “Hey, that’s not too bad.”

Regardless of your reaction, now it’s time to bring that number down to zero.

Step 2: Create Your Debt Repayment Plan

This is much easier than it sounds. While you can use calculators and spreadsheets, there’s no reason to get that involved, unless you really dig that sort of thing.

If you’re not a budget geek, you can instantly create a debt repayment plan by going back through your list (you know, the one you created in Step 1) and numbering the debts in the order you’d like them gone.

There are two theories when it comes to ordering debts.

  • Theory 1. Order the debts by interest rate, starting with the highest rate and working your way down. This method may save the most money overall.
  • Theory 2. Order the debts by their balance, starting with the smallest balance and working your way up. This method may help you quickly see progress and stay motivated.

My personal preference is theory No. 2, although if I had a debt with a significantly higher interest rate than everything else, I might consider paying that one off first.

Then there are all sorts of nuances you can add into your calculations if you want. For instance, if I had a credit card and a vehicle loan with similar interest rates, I would pay off the unsecured credit card first. For cards with promotional rates about to expire, I might move those up to the top of the repayment list. Finally, I would leave the mortgage for last because I itemize my federal tax deductions and can deduct the mortgage interest.

Step 3: Pyramid Your Payments

Now you need to put your plan into action. This involves something we call pyramiding. You may see others use the terms snowball or avalanche. Essentially, it’s focusing all your money on one debt and then building upon minimum payments as you knock out your balances.

Go back to your list and review all the minimum payments due on your debts. Now compare those amounts with the numbers in your budget. If you’re paying more than the minimums, you need to reduce payments on all your debts except whatever is No. 1 on your list.

For example, let’s say all your debt is on three credit cards. Each has a $25 minimum payment, but you’ve been paying $100 each month on each one. To start your pyramid, drop the payment on each of two cards to $25 and add the remaining $75 from each card to the third card’s payment. As a result, you’ll make $25 minimum payments on two cards and one $250 payment ($100+$75+$75) on the last card.

When that last card is paid off, take the $250 and add it to the second card on your list. Now, you’re making one $275 payment and one $25 payment. When card No. 2 is paid off, combine the $275 with the $25 minimum you’ve been paying and make $300 payments until you finish off your debt.

The Best Way to Make Your Pyramid Grow

So why bother with the pyramid? If you’re going to be paying $300 in debt payments every month, does it really matter how you structure the payments?

Money-wise, depending on your balances and interest rates, it might not make a huge difference how you structure your payments. The real benefit of pyramiding is psychological. It gives you a game plan to follow and helps you see results more quickly. Rather than spending years paying small amounts without much obvious progress, you’re heaping all your money on a single debt and watching it disappear.

The secret to making this system work is to look for any and all extra cash you can redirect to your debt. Adding a couple hundred dollars to your payments each month will have you zooming through your debt repayment plan in no time.

And that brings us to our final point.

Reaching the $10,000 Mark

You may be looking at the headline of this article and thinking there’s no way you could possibly pay off $10,000 in debt this year. After all, you’re barely making ends meet as it is, right?

True, if you live on a $20,000 income, you’re probably not going to be able to pay off $10,000 without breaking a sweat. However, for many middle-class families, it’s probably doable.

Let’s look at the numbers.

To pay off $10,000 in debt, you need to pay off about $833 a month, and you’re probably already paying a big chunk of that. Go back to your budget and add up all your current debt payments. How much does that equal?

Granted, some of that money is going to interest, but you’re paying down the principal (your debt) as well. Pull up your account statements to learn exactly how much of your monthly payment goes to principal and how much is being eaten by interest.

Then subtract the total of your current monthly principal payments from $833. For example, if you’re currently paying $333 toward your principal each month, you’d need to come up with an extra $500 each month to reach $10,000 for the year.

There are a number of ways you could do that.

  • You could adopt one of these resolutions that will make you $1,000 richer.
  • You could try these ways to slash your monthly bills by $1,000 a year.
  • You could dip into your savings account (keep at least $1,000 for an emergency fund).
  • You could sell your excess stuff.
  • You could get a second job.
  • You could try some odd and unusual ways to earn extra money.
  • You could cash in your whole life policy and buy cheaper term life instead.
  • Finally, you could consider suspending contributions to your retirement plan or college savings funds. This comes with the caveat that suspending retirement savings should be only a short-term strategy, and I don’t think you should ever give up your 401(k) employer match. However, if your employer only matches up to 3% and you’re currently contributing 6%, you may want to cut your contributions in half temporarily.

Between saving money and earning money, there are plenty of ways to come up with an extra $500 a month to put toward your debt pyramid and hit a $10,000 payoff for 2015. While some ideas require work on your end, others are practically effortless.

This post originally appeared on Money Talks News.

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