Reduce Your Debt in 5 Steps: DIY Debt Reduction

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Reducing debt on your own is neither impossible nor too difficult: it only requires a bit of time and careful planning. Paying a debt counselor or a consolidation agency is a waste of money if you can do their job yourself. opens up on the trade secrets guiding you step-by-step towards debt reduction.

Step 1: Debt assessment

Get your credit report and put order in your financial documents. Avoiding to work through your finances is a big mistake, because the problem will not go away unless you face it. Take time to write all the debts down. Here is what you should put on your list:

–  balances, interest rates and monthly payment for each debt;

–  car loans, payday loans, credit cards, personal loans etc.

–  annual fees on credit cards.

Student loans and mortgages should not be included at this stage of debt reduction. Since such loans have low annual percentage rates (APR) and long terms, they should be handled at an ulterior stage. You should take things gradually and focus on reducing your other debts first.

Step 2: Evaluate your budget

Now that you have a clear picture of your debts, carefully evaluate your monthly budget. From this budget subtract taxes and rent or mortgage payments. Continue with the evaluation of your other expenses:

–  childcare costs,

–  insurance premiums;

–  student loan rates;

–  utilities;

–  groceries etc.

Once you subtract all these expenses, you will get the amount based on which you can reduce your debt. Sometimes the remaining budget is very low and you may feel like you can’t improve finances because of this strain. If this is the case, it’s time you reduced expenses!

You may give up your gym subscription temporarily and take up jogging because it’s free. There may also be other expenses that you can cut back, and use the money to pay your debt sooner.


Step 3: Follow a plan

Once you shed light on debts and expenses, you need to make a plan to improve your financial situation. Fill in the following chart with the information from Step 1 and Step 2. The amount that you should use to pay off debt results from subtracting the debts (Step 1) and expenses (Step 2) from your monthly earnings after tax payment. Pay off debt that has the highest balance and the highest interest rate.

Example Your Plan
Monthly income after taxes   $2,800   $
Minimum debt payments (1) – $1,800 – $
Monthly expenses (2) – $400 – $
Remaining amount goes to the debt with the highest rate and balance = $600 = $


Keep on reducing your debt every month, following the same pattern. Once you are done with one debt, continue with the next highest rate/balance account. There is no better way to reduce debt faster, even if it may seem odd at first. Make sure you don’t add supplementary charges to your credit cards during the paying off interval. Depending on how well you manage your expenses and make savings, you can gradually increase the amount you pay towards the most expensive account. Here is a chart that could help you track debt reduction progress:

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Payment Goal $600 $600 $625 $625 $650 $650
Actual Payment $625


Step 4: It’s time to negotiate!

Once you create a plan for faster debt repayment, you should also make efforts to improve debt terms. And the first thing to do is to contact your lenders and creditors. Talk to the customer service department and see whether you can reduce interest rates or negotiate a better arrangements for some debts.

–  For successful negotiation, choose debts that the creditor has dismissed (charged off) or which are in collections.

–  Create new accounts with more advantageous interest rates to move some of the credit card debts. You may be able to save a lot of interest by moving a balance to a credit card with a  0% introductory rate.

–  Keep an eye on your credit scores. Don’t exceed 35% of the credit limits on credit card balances.

At this time of your financial battle, you may want to evaluate an option like debt consolidation into a home equity loan or a personal loan. Careful analysis (sometimes doubled by professional advice) of all aspects involved is needed in order to make such a big step.

Step 5: Keep on swimming

Try reaching the set repayment objective every month. Sometimes variations appear in the amount you pay for your most pressing debt. As long as you stay consistent and do everything in your power to reduce debt, you are on the right track.

Some people have reported more progress by keeping track of their payments with a chart or by creating an automated payment system. Every major achievement in debt reduction represents one more burden lifted off your shoulder. Soon you’ll be debt free and a lot better prepared to handle financial trouble!

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