Reducing Your Debt

Debt can be one of the most crippling factors in your financial life. Americans owed a staggering $1 trillion in credit card debt as of 2018, and auto loan and student loan balances are around $1 trillion combined as well. These numbers do not include debt from personal loans, payday loans, or medical debt.


If debt gets out of control, especially high-interest debt like credit card debt, it can cause stress, lower your credit score, and ruin your financial life. Fortunately, there are proven steps you can take to help reduce debt and rebuild good credit. Here are eight key steps to effective debt management:

1. Start by Listing Your Debts

The road to freedom from debt begins by being fully aware of just how much debt you have. Begin the process by making a comprehensive list of all your debt amounts, including details such as interest rate, monthly payment amount, and due date. This allows you to get a big-picture perspective on your finances and create an effective repayment strategy.

2. Check Your Credit Report

You should also look at your credit report to verify debt amounts and make sure there are no errors in the report. Everyone is entitled to one free report each year from every major credit bureau (Equifax, Experian, and TransUnion), and we should all take advantage of that to monitor our credit.

3. Determine Where You Went Wrong

As you look at the big picture of your debts, see if you can determine where you got off track so that you don’t make those same mistakes again. Be honest with yourself and identify the areas where you may have overspent. Resolve to make changes to your budget so that you can avoid spending more than what you’re bringing in.

4. Address High-Interest Rates

High-interest rates can dramatically slow down your debt repayment process. Once you have made a list of all your debts, arrange them from the highest interest rates to the lowest and plan to repay high-interest debt first. Consider calling lenders and negotiating your interest rate. Many will agree to do so.

5. Other Strategies for Reducing Interest

Make interest reduction a focus as part of your debt repayment strategy. Look for introductory credit card offers that allow you to transfer balances at 0% or a very low-interest rate. You might also consider taking out a personal loan to consolidate high-interest debt at a lower rate. Refinancing home and auto loans may also result in a lower interest rate and ultimately a lower debt amount. If you are a homeowner, home equity loan is yet another option as well..

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6. Create a Debt Repayment Strategy

A strategy for repayment is key to getting out from under crushing debt. Once you have addressed and reduced your interest rates as much as possible, arrange your loans in terms of the highest interest rates and smaller total amounts. Send any excess funds you can spare to these accounts. Paying off small debts completely can help to create momentum and expedite the re-payment process.

7. Make Payments on Time

One of the most harmful things you can do to your credit is skip payments or pay them late. Resolve to never miss a loan payment. Set up reminders or sign up for autopay online with as many bills as possible. However, ensure there is always enough money in your bank account to cover each payment.

8. Create Financial Goals

Lastly, create a vision for where you want to be in the future financially. Once you are liberated from credit card debt and other debt, what will be possible for you? Would you like to buy a home or start a college fund for your child? Having a positive outcome to work for can be highly motivating.

Having a lot of debt can lead to excess stress in your life while reducing your financial options. Use these eight steps to take control of your debt, pay it down, and pave the way to a more promising financial future.



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