The easiest way to pay off debt is to take small steps.  Unless your debt has reached the point where you’re in immediate danger of losing things like your home and your credit is taking serious hits with each passing day, you don’t need a debt consolidation or elimination service.  The average person can successfully become debt-free on their own—and why pay someone to do something you can do yourself?

Take a look at your bills.  Pick out the one with the lowest balance and the one with the highest interest rate.  From here, it’s your choice where to start.  If you pay off the smallest debt first, you can then easily take the same payment and simply roll it into your payment for the next smallest.  This is called the “snowball method” and while it may be a slow process, it is definitely effective.

If the one with the highest interest rate will cancel out your attempts to pay off the smallest balance first, you may want to pay this one off first instead.  Otherwise, interest might accrue at such a rate that you’ll be left with the exact same amount of debt even by time the smallest one is gone.  If you focus your efforts here, then you can safely move onto the smallest debt, or even the one with the next highest interest rate.

No matter which place you decide to begin, you’re going to need a plan of attack, and you must stick to it.  Even if you do choose a debt counseling service to help you, this process is going to take time.  The sooner you begin, the sooner you can be out of debt.

A word of caution: Do not trust a service that asks you to pay them upfront, proposes that they can eliminate your debt within a too-short period of time (such as only one or two months), insists that they set you up with a new social security number, or makes other questionable promises.  A legitimate service cannot legally do anything more than you can do on your own.  Do not be ashamed if you do need the advice or helping hand; just be sure that you are not in danger of being scammed.  You’ll be worse off than when you started.

Biweekly Payments

One common method is to make biweekly payments instead of one monthly payment.  This will result in one extra yearly payment, cutting down the length of your loan by 6-8 years.  You’ll be paying half of your monthly payment every two weeks, so you may have to adjust the rest of your bill payments to make sure you stay ahead.  And you should speak with your lender to make sure that if you begin this plan, your first payment of the month will be immediately applied to your loan.  If your payment will instead be held until the other half is received, this may not be a worthwhile option for you.

Extra Payments to Principal

Most of your mortgage payment goes toward interest in the first few years of owning your home.  This will make it difficult to get a jump on paying off your loan early.  However, if you do send an extra payment, make sure to mark it specifically as an “extra payment toward principal” to prevent it from being applied to your interest.  Your caution here is to realize that in affecting how much interest you pay during the year, you will also be affecting your taxes since interest is tax-deductible.  Talk with your lender on this option to ensure that you won’t cause an unwelcome surprise during tax season.

Mortgage Accelerator

This method is fairly new to the US but has been popular in Australia and the UK for some time, according to www.moneycentral.msn.com.  This one is a little more complicated, involves some fine print, and you have to qualify for it.  The main idea is that you deposit your entire monthly (or biweekly) paycheck into an account tied directly to your mortgage.  In essence, you’re putting all of that money toward the loan.  So how do you pay for your other monthly expenses?  You’re given a line of credit that you can draw money against.  Of course, with this option, you can’t currently be spending more than you’re making.  Check out www.macquarie.com and www.cmgfs.com (CMG Financial Services) to learn the entire picture, read all of the fine print, and determine if you qualify.

What about the people that say they’ve paid off their mortgages in 5 or 10 years?  You’ll have to read the individual stories floating on the internet.  Many of them used much more aggressive strategies than the 3 listed above, applying every last cent toward their mortgage payments and “living like college students.”  If you’re not interested or able to be that aggressive but you do want to make extra payments somehow, simply create a budget and see where you can cut back.  You might want to skimp on certain little luxuries or even pick up a part-time job for extra cash.

Cash certainly has some obvious disadvantages to it.  First, if you lose it or it is stolen, you’re out of luck.  There’s no way to track it down, much less prove that it was yours to begin with.  It’s highly advised not to carry too much cash on you at once.  You make yourself a target for theft, especially if someone catches a glimpse of how much you may have.

Credit cards, on the other hand, can be the way to go for large purchases.  You certainly wouldn’t want to purchase a new computer with cash, and that’s assuming you have the funds available in the first place.  With a credit card, you can make monthly payments.  Also, even if it is stolen, credit card companies have many programs in place to help protect you and your identity, and it can be relatively easy to have any fraudulent charges removed.

You also can have the benefit of rewards programs with credit cards, where you can earn things like iPods, store gift cards, and airline miles just for using your card for your purchases.  Of course, the disadvantage to the cards is the inevitable interest rate if you are unable to pay your monthly balances in full.  A $100 purchase placed on your account could cost you another $100 over time.

It can also be easier to overspend with a credit card.  With physical cash, you can watch your funds depleting.  You know when you have to stop spending.  When you’re using a credit card, you generally have a high limit, and without diligently tracking your expenses, it’s easy to go overboard and run into a not-so-fun surprise when your monthly statement arrives.  Debit cards can create the same problem since they function similarly to your credit card despite coming out of your checking account.

If you know you tend to overspend and you’re not purchasing any large items where financing would be advised, cash might be a better option for you.  If you’re able to pay your credit card bill in full or at least meet the minimum payments and you take full advantage of the rewards program, go ahead and use credit.  It may be best to find a good balance between both.  Try cash for everyday expenses and leave the credit card for large purchases and emergencies.

American Express can be a good place to start.  Their rewards programs are continuously ranked at the top of the list when compared to others, and there are different levels to choose from so that your available rewards are customized to you.

Rewards With Annual Fees

Some cards require an annual fee, anywhere from $95 for the Green Card, $125 for the Gold Card, and $450 for the Platinum Card.  Depending on your income and your spending habits, these may be well worth it for you in the rewards.  Many of their cards offer travel rewards, and the restrictions seem to be getting looser with most programs: no blackout dates, no expiration on miles or points, no booking fees, choose your airline and flight class, etc.  If you rack up enough points (usually 1 point for every $1 spent, not counting introductory offers and bonuses), you could almost cover an entire vacation with your points.  Use them on your hotel, car rental, restaurants, etc.  The catch with these cards is that you must pay your balance in full every month.

Rewards Without Annual Fees

If you’re not a big spender and/or refuse to pay an annual fee on a credit card, or simply could never afford to pay your entire bill every month, you still have options.  Cards like Blue and Blue Cash don’t have an annual fee, and you start off with 0% APR for your first year.  With Blue, you earn points for spending and can redeem them for travel, entertainment, and gift cards to stores like amazon.com, Home Depot, and GAP.  With Blue Cash, you get a $25 American Express gift card for $2500 you spend on your credit card.

Be sure to choose the one that fits your lifestyle.  If you’re not a traveler, don’t choose the card whose rewards are mostly travel-related.  If you are a traveler, don’t pick the card that offers mainly entertainment rewards.  Whichever one you go with, no matter the company, read the fine print, watch for expiration dates or changes in terms, and squeeze every last drop you can out of the program.  Even if you’re not paying an annual fee, you’re still handing your money over to the credit card company.  Make sure they’re giving you something back.

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Home Equity Loans and Lines of Credit

These types of loans allow homeowners to borrow money using their home as collateral, and can be taken out even if a home has already been mortgaged. With a home equity loan, the total amount that the homeowner borrows is advanced up front when the loan is taken out. The home equity line of credit, on the other hand, works in a fashion that is very similar to a credit card in that you have a maximum amount you can borrow, and have the option of choosing when you want to borrow the money.

As previously mentioned, both types of loans allow the homeowner to either exchange the equity in their home for cash. Most lenders will lend up to 75% of the homes appraised value, less the outstanding balance owed on the mortgage. For example, if your home is appraised at $250,000 and you owe $100,000 on your existing mortgage, you may be able to borrow $250,000 x 75% – $100,000, for a total of $87,000.

The way in which reverse mortgages and home equity lines of credit differ is in how interest is charged. The home equity loan interest rate is typically fixed and amortized for up to fifteen years. Alternatively, instead of a balloon payment the borrower can opt for a reduced amortization period that is due when the amortization period is over. The home equity line of credit interest rate is usually variable, rather than fixed, and has a typical draw period (the time in which the borrower can access funds) of between five and 25 years. When the draw period is over, the principal is paid either as a balloon payment or in accordance to an amortization schedule.

The main advantage of choosing a line of credit over an equity loan is that with the former, you only pay interest on the money you draw, rather than the entire sum that you can potentially borrow. However, with both types of loan, the borrower’s home is the collateral, meaning that defaulting on repayments could potentially lead to foreclosure.

Given that the loan is tied to their most valuable asset, a large number of borrowers choose to use home equity funds only for major expenses, such as college costs or medical expenses. Home equity lines of credit and home equity loans are also popular choices among homeowners looking to increase the value of their homes through remodeling.

Reverse Mortgages

A reverse mortgage also provides the borrower with the ability to tap into the equity of their home. The two biggest differences between reverse mortgages and home equity lines of credit are that there are no monthly repayments to make, and the loan does not have to be paid back until the borrower either passes away or sells their home. If either of these situations occurs, the house is sold and the proceeds are used to pay off the balance of the reverse mortgage.

Reverse mortgages are made available only to homeowners aged 62 years or older. There are virtually no other requirements and neither your credit rating nor your income affects your eligibility. For seniors, this is usually the easiest way of exchanging home equity for cash.

It is even possible for homeowners to obtain a reverse mortgage if they still owe a small amount of money on their conventional mortgage. However, should this situation occur, you are still required to pay the balance of your conventional mortgage.

Another advantage of the reverse mortgage is that you can choose how to have the money you borrow paid to you. You can choose to receive it as an up-front lump sum, as regular monthly payments, or as a credit card-style account where you draw money as you need it. In some cases you can even choose a combination of these options.

There are also some negative aspects associated with reverse mortgages that potential borrowers should be aware of.  First, reverse mortgages have high upfront costs. These upfront costs are typically between five and six percent of the underlying homes value. This is one of the reasons why the loans are so profitable to the lenders. Reverse mortgages are also subject to interest and finance charges, including loan origination fees. This means that the borrower either has to come up with cash to pay for these charges, or roll the finance costs into the mortgage. With the latter option, however, you end up paying interest on the finance charges from the beginning of the loan.

Another issue that can potentially turn into a problem is that associated property taxes and insurance are still payable by the owner of the property. And while you can’t lose your home, some reverse mortgages have conditions that stipulate that if the borrower defaults on their property taxes or insurance, the balance of the loan is due immediately.