02/06/2012 09:57 am ET Updated Apr 07, 2012

Credit: The Gift & The Curse! - 5 Ways to Pay Down Debt

As we still try to recover from the worst economic meltdown since the great depression, we continue to see a trend of high unemployment, foreclosures and bankruptcies.
Despite that there are many people who are taking the proactive approach of getting their financial lives back in order by paying down debt. Besides all the money you are throwing away (and could be saving for a rainy day) by carrying too much debt, there are many other disadvantages. High debt can stop you from getting loans, renting or buying a home, purchasing a car or even getting a job. The problem is that some of us have not been properly trained to manage credit, so we mess it up at an early age and spend a very long time trying to get it right. Credit can be a gift or a curse! Making some small sacrifices early can give you peace of mind and put you on the right road to financial freedom. The following are five steps to beginning the process:

1) Pay More Than the Minimum Due

If you had a $3,000 credit card at 17 percent paying only the minimum, it would take you approximately 10 years to pay it off in full costing you $2,241 in interest. This is exactly what the credit card companies want you to do, because that's how they make their money. Paying down more than the minimum will not only shorten the amount of time it takes for you to pay off your debt, it will also save you money in the long run.

If you're struggling to find the extra money each month to pay more than the minimum, I would suggest that you begin to cut back on some of the less necessary expenses that you may have.

2) Aggressively Attack the Higher Rate Cards

If you have credit cards that have a lower rate consider doing a balance transfer into it from your higher rate cards. This will significantly decrease your interest payments freeing up more money to pay down debt. If your lower rate card does not have enough available credit in order to do the transfer than the second option would be again to pay more than the minimum on your higher cards to get rid of those faster.

3) Take Out A Second Mortgage (Home Equity Loan)

If you are a homeowner, taking out a Second mortgage or Home Equity loan to pay down debt is not a bad idea. Typically the rate on a second mortgage is going to be less than your credit card and the interest that is paid can be tax deductible, giving you extra savings.

4) Borrow from your 401K.

Some financial experts cringe at this idea but personally, I am a big supporter. Borrowing from your 401k to pay down debt is a good idea because the interest rate on a 401k loan is typically very nominal and in most cases the principal and interest from the loan is put back into your 401k. In essence, you are borrowing from yourself and paying yourself back.

5) Negotiate for Lower Rates

Last but certainly not least, you can negotiate for lower rates. Most creditors would rather work with you and lower your rates than lose you to another bank that's offering an introductory rate. This becomes more the case if you have a favorable paying history. A closed month doesn't get fed! The worst thing your creditor can say is no but trust me, you will be pleasantly surprised.

The state of the economy can be frightening for most, but only if you are not prepared. The more proactive you are, the better prepared you will be for that rainy day. Begin to pay down your debt and get a head start on your financial freedom.