What is the best way to lower my debt?
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So in our example, you had been paying $55 a month to debt #1; when you pay off debt #1, consider putting half of that (oh, let's call it $25 a month) into savings. (It's even better if you have access to a 401(k) program at work, because you pay with pre-tax dollars and your employer usually matches you to some extent, but that's another topic altogether.)
The other tip: use personal finance software (I use Quicken) to manage your expenses. Not just for keeping track of what you've already spent -- the real power in a program like this is that you can enter future transactions as well. The program will update your balance as far into the future as you want to make entries, so you can see when you need to adjust a date or whether you can add a little more into a debt this month to pay it down faster. (And Quicken also has a debt reduction planner which will work with your exact figures for balance, interest and minimum payment, and it tells you exactly how much sooner you'll be debt-free if you can follow its recommendations.)
In any event, the main point behind this classic debt-reduction strategy is that you pay down one debt as quickly as possible, putting whatever extra money you have into that one account while just staying current with your other debts. Then you repeat this with the next debt, and the next, until at last they're all down to zero. Don't try to pay more than the minimum on more than one account per month; that only prolongs the agony.
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