The best ways to pay off every kind of debt

At the end of 2016, American household debt totaled $12.58 trillion, according to the Federal Reserve Bank of New York. If you're in debt and don't know how to pay it off, the first step is to learn which method of paying off debt is best for the type you have. Before you resort to any ridiculous ways to pay off debt, follow these steps to pay back lenders.

The First Step to Paying Off Debt

The first step to figuring out how to pay off debt is making a plan. Contact your lenders to find out exactly how much you owe on each credit card, loan, credit line and mortgage.

Ask your lenders the following questions:

  • Can I make extra payments at any time?

  • Can I make payments electronically?

  • Is there a penalty to pay a debt off early?

The answers to these questions will help you prioritize which debts to pay off first and how to pay them off strategically. Each type of debt and lender has different requirements you'll need to keep in mind. Make a plan with a timeline that suits your lenders and your budget so that you can stick to it.

How to Pay Off Student Loan Debt

American student loan balances totaled $1.31 trillion at the end of December 2016, according to the Federal Reserve Bank of New York. To pay off your student loans faster, take these steps:

  1. Calculate exactly what you owe by visiting the National Student Loan Data System or checking with your lender.

  2. If you have multiple student loans, consider consolidating or refinancing them to simplify your payments or get a better interest rate. Read more online at the Federal Student Loan website or talk to your lender.

  3. Cut your expenses and increase your income as much as possible so you'll have extra money to put toward paying off your loans.

  4. Make at least your minimum payment and try to pay an extra $50 to $100 toward your highest interest loans each month. The extra payments pay down your principal and accelerate paying off the loan.

  5. If you're serious about paying off your student loans, consider taking a job in one of the states that don't collect income tax and applying your tax savings to your debt.

Related: 10 Best Debt-Consolidation Companies

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How to Pay Off Credit Card Debt

Many people don't know how to pay off credit card debt fast. For some, credit cards have become a staple of their budget. At the end of December 2016, Americans had $779 million in credit card debt, according to the Federal Reserve Bank of New York.

The best way to pay off credit card debt depends on your current cards' interest rates and whether you can consolidate your balances and transfer them to a new card with a lower interest rate. Here are some of the best options:

  1. Use the snowball method: Pay off cards with the lowest balances first to knock out the small debts faster. Make a set monthly payment that exceeds the minimum due. As your balance — and your minimum payment — decreases, more of your payment will go toward your other loans, and you'll pay off your cards faster while achieving some motivating wins along the way.

  2. You can pay off several credit cards at once when you get a personal loan at a lower interest rate than your credit card rates and consolidate your credit card balances under one loan payment.

  3. If you have a good credit score, get a card with a low or no interest rate for balance transfers and transfer your balances to the new card. Calculate how much you'll have to pay each month — before your promotional rate expires — to pay off the balance in full and make sure you do so within the time frame for the promotional rate.

How to Pay Off Personal Loan Debt and Car Loan Debt

Paying off personal loans and car loans is usually different from paying off credit card debt because loan terms and credit card terms can be so different. Follow these five steps to eliminate your loan debt:

  1. Confirm your interest rate, term, and options for making extra payments on the loan, including any penalties for early payoff.

  2. Call your lender and ask for a lower rate. This step is particularly important if you have improved your credit score and credit history since you first got the loan. If you got a personal loan for bad credit, for example, it likely came with terms designed to offset the lender's risk, such as a higher interest rate. If you've been making your payments on time, chances are good that your lender will reduce your rate. If you keep making the same payments at a lower interest rate, more of your money will go toward your loan's principal so you can pay it off faster.

  3. Ask your lender if you can change your payments to biweekly instead of monthly so you make 26 payments per year instead of 12. Spreading out payments with this method can enable you to make a bigger dent in your principal.

Read: 5-Step Guide to Refinancing Your Personal Loan

How to Pay Off Your Mortgage

Before you add "paying off mortgage" to your list of financial goals, start by asking the question, "Should I pay off my mortgage?" If you have other high-interest-rate debt, it might make more financial sense to pay that off first.

You have lots of choices for paying off your mortgage early, but check with your lender first to see if there are any prepayment penalties. Depending on your loan's terms, you could take the following steps to pay your mortgage faster:

  1. Make extra payments toward the principal each month.

  2. Make lump sum, extra payments once or twice a year.

  3. Apply windfall money — like a work bonus or tax refund — to your mortgage.

  4. Change your payments from 12 monthly payments to 26 biweekly payments per year so that you put extra money toward the principal and reduce interest, which means you'll pay it off faster.

  5. If you have good credit, renegotiate or refinance your mortgage for a lower interest rate but keep your payments the same — this will speed up paying off your mortgage.

  6. If you renegotiate or refinance, find out if your lender or another lender can offer you better loan terms, such as a mortgage without private mortgage insurance to reduce your monthly payment amount. For example, if you've improved your credit, you could qualify to turn your FHA mortgage with PMI into a traditional mortgage without PMI through the refinancing process, saving yourself hundreds per year.

How to Pay Off Back Taxes

Don't let unpaid back taxes ruin your finances. Choose one of these options to pay the IRS off as quickly as possible:

  1. Confirm the amount of your outstanding back taxes online through the "view your account balance" page.

  2. If the amount you owe is low enough to pay off with a low- or no-interest credit card, make an online payment on the IRS website.

  3. If you can pay off your back taxes in 60 to 120 days, request an installment agreement online or call 800-829-1040. You'll typically pay less in penalties and interest if you repay via a predetermined installment agreement than if you pay over a longer period of time.

  4. See if you qualify for the Fresh Start Program, which offers other options for taxpayers struggling to pay off outstanding taxes.

Next Up: Is Taking Out Loans to Pay Off the IRS a Good Idea?

Learning how to pay off debt takes time, money and dedication. Once you make a plan to pay off your debt, stick to it. When you're debt-free, you'll be able to put the money you used to make in payments to lenders toward other expenses and financial goals, such as saving for retirement.

This article originally appeared on The Best Ways to Pay Off Every Kind of Debt

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