Your Guide to Saving Money

Step 4: Pay Off All Credit-Card Debts

Yes, that’s right: Tackling your credit-card bills is step four. Why not pay them down earlier? For one thing, you don’t want to accumulate even more debt if you’re faced with an unexpected expense. And it’s crucial to get started on retirement savings. If you don’t have any rotating balances, go ahead to step five. But if you do, begin by making a list of all your card bills, then start paying off the one with the highest rate first—this will eliminate the balance that costs you the most. Then move to the card with the second-highest rate, and so on. (Do this regardless of which card has the lowest balance or the highest annual fee.) If you can, transfer a balance from a high-rate card to a low-rate card. To find one with a no- or low-balance transfer fee, go to CreditCards.com or check with your local bank, which may offer a promotion. And if you have some equity in your house, “consider refinancing your mortgage and consolidating your debt, which allows you to deduct the amount of interest you’ve paid on your taxes,” says Amanda Gift, a financial planner in Norfolk, Virginia. However, be sure to proceed with extreme caution. If you combine your credit-card debt into your mortgage and then fail to make your payments, you risk having your home go into foreclosure.