7 tips to lower your debt and fix your finances

Many of us have some form of debt, whether student loans, credit cards, or mortgages. Debt can be dangerous, but it is also a powerful tool, and using debt responsibly is also one of the hallmarks of those with excellent credit scores. If you're looking to turn your debt into a benefit, not a detriment, here are 7 tips to lower your debt and fix your finances.

1. Stem the bleeding

Taking on more debt will make it difficult to start paying off what you owe and get your debt working for you. If you can't resist the temptation of credit card offers, consider freezing your credit with the credit bureaus. All three (Experian, Equifax, and Transunion) can place a freeze on your account, which will prohibit you from opening up new lines of credit. It has the additional benefit of ensuring that no one else can borrow on your behalf, greatly reducing your risk of becoming a victim of fraud.

2. Build an emergency fund

Saving money may seem counterproductive when you could be paying down your debt. Having a nest egg can come in handy later on. If you lose your job, you can fall back on your emergency fund until you find new employment. Make $1,000 in the bank a starting goal; then you can ramp that up to 3-6 months' worth of monthly bills. The ideal goal would be to have 6-12 months of monthly bills in an emergency fund ready to go if need be.

3. Gather up all data

This entails getting your credit reports and credit score, and making a list of creditors and bills you owe. Scan over your credit report to see if there are any errors or if they are any bills that you may have forgotten. Use this format below to create your list:

Name of Creditor / owed balance / minimum monthly payment / interest rate

List your creditors in order by balance owed or by interest rate.

4. Institute a payment plan

There are a couple of options on which bill to pay down first. Financial gurus like Dave Ramsey would suggest paying off the lowest balance first. Paying off small amounts will give you "quick wins" to psychologically prime you for paying off the more significant bills later on. Other financial people like John Cummuta would suggest paying off the creditor with the highest interest rate to save you money on interest payments. In either event, once a creditor has been paid off, you can apply that payment to the next one on the list. These payments will increase as creditors get paid off over time.

5. Keep on top of your monthly budget

Finding ways to trim the budget in some areas and techniques to make more money in other areas can expedite the debt payoff process. The more money that can be "found" in this way is more money that you can apply to your debts every month.

6. Consider debt consolidation, home equity loan, or mortgage refinance

Companies such as Figure can lend you the money you need to pay off all your debts if you have equity in your home. For credit card debt, in particular, this can have real benefits as your home equity line of credit will most likely have a much lower rate of interest. If prevailing interest rates are lower now than the interest rates of your primary mortgage, a mortgage refinance may unlock tremendous savings.

7. Settle with your creditors

Use this option if your debt is substantial and has been hanging around for a while. Creditors will usually accept a lump sum payment for an amount less than the full amount as payment in full. This will have a positive effect on your credit score.