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Spend less than you make

This conventional wisdom is easier to say than do. However make it a habit as fundamental as stopping for red lights. If you can’t pay for it today, you can’t afford it. Accept this fact.

Tell the difference between good and bad debts

Good debt has a low interest rate — preferably with some tax advantages. In the best case, what you bought with borrowed funds will appreciate in value. Home mortgages and student loans are examples of good debts. Car loans are on the border: The interest rate is often low, but cars almost never appreciate in value. Bad Debt is everything else.

Choose your best cards

Among all your cards, pick the one or two major credit cards that feature the lowest annual interest rate. Resolve to use those cards for emergencies only. As for all the other plastics, remove temptation by taking them out of your wallet. Do whatever it takes not to use them.

Gather the latest bills from all Bad Debt accounts

Find the minimum monthly payment for each account and then add these up to get an overall monthly minimum. Pledge to pay this overall minimum PLUS a hefty additional chunk every month — enough to make a solid dent in the outstanding balance of at least one account. If you can’t pull this off, you’ll have to make a drastic move to increase your income or lower your expenses. It’s harsh, we know, but it’s also an inescapable fact.

Pick the highest interest rate account and: Attack!

Next, order the latest bills according to annual interest rate charged. Apply the “hefty additional chunk” (beyond the minimum) to the highest rate account(s). Repeat this process monthly until the last Bad Debt account is paid in full.

Be prudent

Be aggressive in paying down Bad Debt, but don’t get so ambitious that you risk missing minimum payments on your mortgage, automobile, or any other secured credit account. (Secured means that if you miss enough payments, the bank can show up and take away your stuff.)

Dance!

You’re done when the Bad Debt is 100% exorcised and you can make remaining OK Debt payments with ease, leaving plenty of budget room for savings.