The key to getting rid of debt is to commit to fixed, not declining, monthly payments. With your 19.75% credit card, if you were to pay off a debt of $30,000.00 at a fixed payment of $600 per month, you would pay the debt off in just under 9 years, and pay approximately $30, 000.00 in interest. Suppose you take out a home equity loan at 4% interest. If you pay it off at $600 per month, you will retire the debt in just under 4.5 years – 4.5 years sooner than with the credit card. But best of all, your interest cost will be reduced from $30,000.00 to $3,000.00. That's approximately $27,000.00 in your pocket with exactly the same monthly payments! Of course, your debt may not reside on one, but multiple credit cards. The practice of transferring all of your debt to a single loan is called debt consolidation. Here's how it works: Take out a single loan, and use the proceeds of the loan to pay off all your debt in full. Then, you pay off the loan in single monthly payments. If you use a home equity loan, the interest rate will be half of what you paid on the credit card, or even less.
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