There are a number of ways to proceed in developing a debt elimination plan, and the plan of choice depends on your specific situation. What is most important is to establish a plan and then stick to it.

"Nothing New" Plan
If you feel more comfortable making your existing payments and can afford to live on what you earn without incurring additional debt, this may be your option. Basically, you just keep making your payments. There are three keys to this approach: 1) you must live on what you earn (don't use your credit cards anymore), 2) you must have cash to cover emergencies, and 3) you must keep paying the same amount even when they reduce your required payment. If you use our Debt Payment Calculator, you can determine exactly how long it will take to pay off your loans.

If you have spare cash each month, rather than pay down your debt early, it's more important to live on what you make and save for those items you may have been charging, like clothing, Christmas, airfare home, vacations, etc. Extra money that comes in, like tax refunds or pay raises, can be used to pay down your credit card balances after you have enough in your emergency fund.

"Highest Interest" Plan
If you have extra money that you can apply to paying down your debt, one approach is to add this extra amount to the payment for the loan which has the highest interest rate. In this plan, you pay as much as you can toward the debt with the highest interest rate, and pay only the minimum on all other debts. Once you pay off a debt, then you add the payment you were making on that debt to the next loan payment with the highest interest rate. This means that your total monthly debt payment remains the same until you are totally out of debt.

If you would like to develop a detailed plan using this approach, we recommend the CNN Debt Planner. Make sure that you click on the "See full payment plan" link on the plan summary page so that you will know exactly how much you should be paying every month to eliminate your debt in the timeframe that you choose.

"Pyramid" Plan
If you have extra money that you can apply to paying down your debt, another approach is called the Pyramid Plan. You basically create a pyramid based on the amount of each loan. Therefore, the smallest loan would form the top of the pyramid, while the largest loan would form the base of the pyramid. You would then begin paying off the smallest loan first, regardless of interest rate. You would add your extra amount to the payment for this smallest loan. This is the quickest way to pay off one of your loans and provide yet more savings that can be applied to paying down your debt. However, this approach is advantageous only when you then apply the previous loan payment amount to the next smallest outstanding balance. For example, your monthly payment for loan A was $50, and you are able to pay an additional $25 a month toward loan A. When you pay off loan A, you take the $75 you were paying for loan A and now add it to the normal payment you were making on loan B (next smallest amount owed). One easy way to develop this plan is to use a Debt Elimination Calendar.

Once you have figured out which approach you are going to use, and you have developed your plan, then it is time to actually implement your plan.

Step 5 - Take Action