It’s heading toward the end of February - many people started out the new year with high hopes and plans to pay off debt. How are you doing in this area? Have you been sticking to those goals?

What are your plans for paying off debt in 2010?

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0:55 Distinguish between Bad Debt and OK Debt
OK Debt has an interest rate well under 10%—preferably with some tax advantages to boot. In the best case, what you bought with borrowed funds will appreciate in value. Home mortgages and student loans are examples of OK Debt. Automobile loans are on the border: They often satisfy the low-rate piece, but automobiles almost never appreciate in value. Bad Debt is everything else—from your titanium credit card to the 35% loan from Larry’s Kwik Kash.

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Many people are convinced that they should increase their investment in their homes by paying down their mortgages. Several readers have told me the great satisfaction they get from sending extra payments with their regular mortgage checks. Others are opting for 15-year loans instead of the standard 30-year variety so they can pay off the note more quickly.

It’s so much nicer, they say, to see their loan balances dropping than it is to watch their other investments buck and pitch in today’s difficult stock market.

Unfortunately, in their rush to free themselves of their home loans, many of these would-be Mortgage Terminators are ignoring other debts and obligations that ultimately will cost them more.

It makes no sense, for example, to speed up paying off low-interest, tax-deductible debt if you’ve got any other kind of debt—credit cards, car loans, personal loans, student loans, you name it.

When it comes to paying off balances, your first goal should be to pay off your highest-rate nondeductible debt. Only after the credit cards, personal loans and car loans are retired should you even consider prepaying a deductible student loan or business loan. Mortgage interest is typically the last debt you want to pay.

Any time is a good time to think about paying off debt. Be it the holidays, the new year, or your birthday - now is a fantastic time to free yourself of the confines of high-interest credit card debt. It’s pretty likely that we’ve all been leaning a bit on those open lines of credit to make ends meet during these chokingly bad economic times, but racking up those interest charges will only hurt you in the long run. Here are some suggestions of what to do and what not to do in order to pay off some of those accounts.

The first thing you should do is make a plan. Figure out how many credit cards you actually have, and how much you owe on each. You’d be surprised at how many people don’t keep track of which cards they have, what the interest rate is on each, and how much they owe on each one. Once you do this, you can identify which cards have the lowest interest rates and which ones you owe the most on.

Speaking of that low-interest card - if you’ve got some room on that account, it might be a good idea to transfer the balances of higher-interest cards on over. A lot of credit card companies offer very reasonable deals on balance transfers. A word of caution: make sure you read all the fine print. Make sure it really is a good deal, and pay close attention to how long the deal will last. You don’t want to transfer big balances over to a lower-interest card only to have the interest rate rise. Then you’re stuck in the same boat you were in before! Also keep in mind that you never know until you try - call your credit card companies to ask for a lower interest rate. The worst they can say is no, and if they say yes it will make it that much easier to pay down your debt.

Even if you’re not able to transfer any balances, one key to paying off credit card debt is to pay more than the minimum due. When you think about it, paying the minimum payment is sort of like throwing money at the credit card companies. The less you pay every month, the more they can charge interest on.

That’s taking money away from you and putting it directly into their hands. The best thing to do is pay off as much as you can every month. Just an extra $10 or $15 on each payment can make a difference, but you’ll see an even bigger difference if you can pay double or even triple your minimum payment every month.

Easier said than done, right? Sometimes the only payment you CAN make is the minimum payment. To pay more, you have to think about bringing in some more money. That’s also easier said than done. A lot of experts will recommend that you borrow money - either from your 401K, from your life insurance policy, or even from family members - in order to pay off your credit card debt. Unless you’re in over $10,000 of credit card debt, that’s never a good idea. Why go into more debt to satisfy debt you already have? Under $10,000 is a manageable amount that you should be able to pay off in a year or so provided you get your interest rates down and you pay more than the minimum payment every month.

This is actually quite brilliant. I have looked at many other plans which go with the notion that you should pay off the highest interest first. Although this might work for Mr. Spock few people can approach things on a completely logical basis. By experiencing success early on this concept integrates a psychological approach to the system. I will definitely give it a try.

The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted. First accumulate $1,000 cash as an emergency fund. Then begin intensely getting rid of all debt (except the house) using my debt snowball plan. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan.

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