Maybe you’re afraid to face your bills, or just don’t know how to start paying them off. What you do know is you want relief from too much debt.
Here are three concrete steps to help you get a handle on debt, each of which can be done in an hour or less:
1. Add it up
“The first step to getting control over your money is to know exactly what you’re dealing with,” says Lara Lamb, a certified financial planner at California firm Abacus Wealth Partners.
List your debts and their interest rates. Include credit cards, medical bills, and auto, payday and personal loans, but not your mortgage or student loans, which are considered “good” debts you can pay off over the long term.
Divide the total by your gross annual income. This number is your debt-to-income ratio, and it will help you with the next step, choosing a strategy to pay off debt.
2. Pick a strategy
Moderate debt: Suppose you’ve racked up balances on a few credit cards and feel confident you can pay them off with a little budgeting and discipline. Explore do-it-yourself methods like debt avalanche or debt snowball.
With debt avalanche, you pay off the highest interest-rate debt first, which can lower the total interest you pay. The snowball method involves paying off debts from the smallest to the largest amount, regardless of interest rate. The short-term reward of knocking off a smaller debt or two can motivate you to keep going.
Heavier debt: If your debt-to-income ratio is high — between 15% and 50% — then the snowball or avalanche method is less likely to cut it.
Instead, consider a 0% interest balance-transfer credit card or low-interest debt consolidation loan to pay off your debt — and be unwavering about paying off that card or loan.
Crushing debt: If you’re overwhelmed with debt, especially if it’s more than half your gross income, ask for help. Talk to a nonprofit credit counselor and a bankruptcy attorney. Initial consultations with both are typically free.
3. Be your own advocate
You may have heard ads for companies that say they can solve your debt problems. But you can negotiate with creditors yourself — for free.
Using your list of debts, call each creditor. If you aren’t seriously behind on your payments, asking for a lower interest rate or information about a hardship program shouldn’t do any harm.
Let’s take the credit cards example again. If you’ve been paying the minimum due each month but carrying a balance, you still have a history of on-time payments. That could help your case when you negotiate with your issuer.
“It can be scary, but it’s important to create a plan before you can move forward and gain control,” Lamb says.
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