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How to Reduce Debt in 4 Simple Steps

Debt reduction is an important financial concern for every household. Many people veer away from financial planning because the topic feels complex and intimidating. The truth is, you don’t have to have a finance degree to achieve financial health. Instead of the complex lingo and advanced strategies start simple by focusing on achievable goal-oriented activities.

When financial planning is avoided, you miss the opportunity to pay debtors less on interest. More importantly, you lengthen the time it takes to gain financial freedom. For example, according to a study conducted by, Florida residents maintain more than $8,000 in credit card debt. When this debt is repaid on a 2% repayment schedule the actual interest paid on this debt amounts to over $10,000. Using this scenario, when payment towards debt is increased every month the annual interest rate also decreases. This allows you to save more money and pay off debt faster. In the end, less debt and more money is a goal everyone wants to achieve. Now that you understand the primary motivation behind reducing debt let’s dive into four simple steps you can start using to reduce debt and create your debt reduction plan.

Understand Your Financial State Intimately

man on the phone discussing debt reduction

One of the biggest challenges with reducing debt is that people often don’t understand their financial state intimately. Take this opportunity to dive into your finances and craft a deep understanding of how your money habits. This is important because when we are not presented with a holistic picture on any topic, it becomes increasingly difficult to create plans around it.

For example, during the new year, we often make lofty resolutions that are not always achievable. Most resolutions fall by the wayside after a few months because we are unable to sustain them long term. However, when we make resolutions that also fall in line with our lifestyle the potential for success is much greater. The same is true about reducing debt.

An easy exercise to develop an intimate relationship with your money habits is to create a simple spreadsheet that outlines your income, expenses, and debt details. Some important things to document include:

  • Total monthly income
  • Total debt
  • Individual loans or credit cards
  • Remaining balances for each item
  • Interest rates for each item
  • Monthly payments - specify principal and interest payments


Once you have these details documented you’ll be able to spot opportunities to reduce debt faster or on a more granular level, it may show you how to pay off credit card debt.

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Consolidate Debt When Possible

woman happily paying down debt on phone with credit cardIf you have a large amount of debt and want to reduce debt quickly a debt consolidation loan may be the right option for you. When you consolidate debt, you are often able to decrease monthly payments. Giving you the opportunity to reallocate that savings to another goal or increase the speed at which you pay off your principal debt. A simple debt consolidation calculator can help you calculate debt consolidation options with ease. Should you decide to consolidate debt here are a few critical considerations you should keep in mind.

  • Avoid companies offering high-interest rate debt consolidation loans; it’s counter intuitive
  • Manage your credit score to help qualify for low-interest rates
  • For example, you can request a free annual credit report from Experian, Transunion, and Equifax to help you monitor yearly credit score changes.
  • Consider using a HELOC for debt consolidation
  • Review tax relief, benefits and incentives you may qualify for to help you save.

Pay More Than The Minimum Payment

If your current debt is manageable but you are looking for methods to repay debt quicker, paying more than the minimum payment is definitely a smart practice. As mentioned above, increasing your principal payment every month helps you reduce your interest expense on debt while helping you eliminate debt faster. This is particularly useful when trying to pay off holiday debt or emergency expenses. Keep in mind you should avoid paying more than the minimum payment if paying more will cause you to miss a payment in the near future. To avoid this common pitfall try reworking your budget to be able to pay more on debt. Some examples of budget reworking include:

  • Eat out twice a month as opposed to three times a month
  • Sign up for an Rakuten account and get cashback on purchases
  • Cancel premium cable or subscription services

The great thing about financial health and literacy is that it is a consummate process. It takes time and doesn’t necessarily require you to rush through it. Instead, focus on developing habits that help you reduce or eliminate debt. Taking a long term approach to debt management will help you avoid dire financial circumstances and improve your overall financial health in the long term.

Negotiate Interest Rates or Repayment Schedules

Although unorthodox, if you are in good standing with your lenders, negotiating your existing fees or repayment schedule may be an option. The key here is that you never know what options are available until you ask. Making this a routine practice will help you identify opportunities to pay off debt quicker or help you identify more ideal leverage options. In short, make your banker your best friend or at least on the shortlist of people you must be in contact with daily.

Overall, debt reduction doesn’t have to break your bank account. Instead, use these simple tips to create practical financial habits or find a local lender who can help you develop a debt elimination or reduction plan.



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