How to Reduce your Debt

As soon as you’ve made the decision to take control of your personal financial situation, you’ll want to learn how to budget and get out of debt. The first step in reducing debt is to stop adding to it. You can do this in two ways: reduce purchases and reduce interest payments. As you follow these tips for how to reduce debt, you’ll gain some immediate benefits.
Use a budget to reduce debt
It is beneficial to create a detailed budget to track income and expenditures. You can use this approach to plan and monitor information for debt management. With a budget, you will:
- Know how much net income you have available to spend.
- Know what your fixed costs are (e.g. mortgage or rent, car or other loan).
- Know what your variable spending is by category (e.g. childcare, food, transportation, savings).
- Know what your credit card bills include (i.e. broken down by new purchases and interest)
Create your budget with your own spreadsheet or use ready-made tools such as those provided by Mint.
5 ways to reduce and manage your debt

Having more money going out than coming in is not sustainable.
Once you have a budget, you need to balance it. Keep one basic but important thought in mind: Having more money going out than coming in is not sustainable. If you get to this unstable situation, or preferably before that time, you need to take several actions.
- Increase your income. Any extra income you bring in can go right to making a dent in your debt.
- Work extra hours – If you’re paid hourly, sometimes working above 40 hours per week can often bring in wages at time and a half of your normal rate.
- Get a second job – You might even be able to work from home with freelancing opportunities or take on a very flexible part-time job, such as driving an Uber.
- Become a dual-career family if only one spouse works now.
- Rent out a bedroom – With sites such as craigslist and airbnb you can connect to a potential roommate or part-time renter for when you’re away from home.
- Sell things you don’t need – A garage sale can bring in some cash. Use eBay or craigslist to efficiently reach even more eager buyers, especially for bigger-ticket items.
- Reduce your fixed costs. It’s easy to think of your home and car as expenses that you can’t change, but often you can.
- Refinance your mortgage for a lower monthly payment with either a first mortgage or home equity loan.
- Move to a less expensive home.
- Sell your car and get rid of car loan, insurance, parking and maintenance expenses. Use public transportation or a bike to get to work or change to a less expensive car.
- Reduce your variable expenses. This is where you may have a lot of flexibility, by cutting out non-necessary items.
- Cook at home instead of dining out and shop smartly for the best deals.
- Stop making impulse purchases. Determine your necessities and stick to a plan.
- Cut out luxury items, from coffee-shop drinks to weekend splurges.
- Find free or low-cost activities for family fun.
- Get the family engaged in money-saving efforts, for example, working to reduce electricity usage and economizing purchases.
- Have your kids get after-school jobs to pay for their own discretionary expenses.
- Exercise and stay fit to avoid unexpected healthcare costs.
- Reduce your interest payments. It might help to think of these as payments that give you nothing of value!
- Debt consolidation. Use a balance transfer, personal loan, or home equity loan to consolidate high interest debt into one lower interest payment. This is perhaps your best tool to get out of significant debt.
- Pay your balance instead of minimum payments. If you can’t, pay as early in the billing cycle as you can to reduce interest accruals.
How managing money can help to reduce debt?
Manage your budget and implement the steps to increase income and reduce debt. Even while you’re still in debt, when you flip the situation so that you have more money coming in than going out, you’ll have numerous benefits:
- Accelerate your debt payment and pull forward your timing for being debt-free.
- Your credit score may start to increase, which may help reduce your current and future interest rates, further reducing your interest expenses. A higher credit score may help you get a better rate when you apply for future loans.
- Improve your mental state and physical health by reducing the stress of overwhelming debt and lack of control. Stress reduction might even reduce your medical costs.
- Start creating good savings habits that will last a lifetime. Learn to “pay yourself” as part of your monthly budget.
- Use some of your freed-up discretionary funds to set up an emergency savings, which can provide good financial protection if you lose your job, experience a medical situation or have unexpected expenses.
- Add to your retirement savings. You may qualify for some matching funds from your employer or tax breaks from the government.
Applying the principles of how to get out of debt requires regular attention to your financial situation, which creates good habits for long-term financial health. Get the whole family involved in making good decisions and working toward long-term goals.

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