Part 2: Star Jones Reveals the Financial Mistake That Was Her Greatest Teacher

If you struggle with credit card debt, create a debt plan so you can free yourself to make choices that represent your goals and priorities. If you have more than one credit card, any account that is already past due should be the top priority when allocating extra money for payments. In addition, planners point to two strategy options:

1. Debt Snowball:  Arrange your debt in order of balance, from lowest to highest. Start by power-paying the lowest account balance until it is paid off, while making minimum payments to the others. Once the lowest debt is paid off, allocate your money to the next largest balance. This can be very motivating for those who need to see faster results in order to reach their goal of debt freedom.

2. The Ladder Method: This method involves prioritizing debt in order of interest rate, from highest to lowest, without regard to the amount owed. Start by allocating all extra money toward repayment of the debt with the highest interest rate while making minimum payments to the rest. When the highest interest debt is gone, all money should then go to the account with the next highest rate. The ladder method is often promoted as the one that saves the most money over the long term, because high interest rate debts are eliminated early.

While there are no guaranteed results, negotiating fees and interest with a creditor can make a big difference in how fast a debt is repaid. This can also result in hundreds and even thousands of dollars in savings over the long term.

Credit counseling experts also echo Jones’ advice when it comes to knowing how to prioritize yourself. “It remains important to stay in the habit of paying yourself first,” says Bruce McClary of the National Foundation for Credit Counseling. “Having savings in place for emergencies will help you avoid going deeper into debt at a time when you are trying to get debt out of the picture. It is just as important to continue saving for retirement since any interruption in the process can deliver a major setback toward reaching that goal.”

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