5 Ways to Cut Down on Debt 

5 Ways to Cut Down on Debt

The concept of debt may sound like a balancing act, but that’s because it can be. Rest assured, if you’re feeling overwhelmed by balancing out your debt, you’re not alone!

Debt doesn’t have to be a scary thing if you take time to create a plan of action and stick to small, simple steps that make a big difference over time.

You can stop that ball from rolling too fast if you catch it before it builds up any real momentum. Prevent building up too much debt too quickly and you can turn things around and pay it back down to a manageable level without the need for drastic action.

Here are 5 simple ways to reduce debt. Just remember, simple does not mean easy.

1. Start with a Monthly Budget

It can be hard to accept, but you probably have a limited amount of money to work with each month. When that money comes in, it’s likely spent already with every cent marked for some reoccurring expense or invoice,

But what happens if there’s an emergency? What if the car breaks, or an appliance? Or worse, what if an illness keeps you out of work for a few weeks?

If you don’t have a plan, these things can easily increase the debt you already carry.

Start by adding up all your monthly income, create an expense list, and make sure you are spending less that you take in. Assign a simple amount to each want or need such as utility bills and groceries, then decide how to use whatever is left.

If you end up with a surplus, or you take in more than you need to meet your expenses, put some of it away for emergencies. Then use the rest to reduce your debts.

But, more importantly, know where you stand first.

2. Stop Adding More Debt

Once you know how much you need to meet your bills each month, stop adding more debt you don’t really need.

This takes commitment and discipline, but if you are truly committed to reducing your debt, you can do it. You’ll need to consider each new purchase carefully and decide whether or not the added debt is worth the reward.

Do you really need a new computer? Or do you just want one? Is landscaping the front of your home or installing a pool more important than reducing your debt?

You can always landscape your home next year. However, adding more debt today might make it impossible to stop that debt from growing tomorrow.

3. Reduce Unnecessary Expenses

Once you have a budget, you’ll also have a better picture of what you really need to survive. That will also give you a clear view of places in your budget you can cut costs.

Everyone needs some entertainment, or to travel a little to see family and friends. But do you know what’s worth the expense and what isn’t?

With a good, detailed budget you can choose different expenses to cancel as needed.

You can probably cut out simpler costs, such as eating out less and buying generic versions of stuff when it doesn’t matter. By making little cuts here and there, you’ll be surprised how much you end up with left over.

And that’s more money you can use to pay off other debt.

4. Build an Emergency Fund

If you don’t have an emergency fund set aside and you have an emergency, the simplest way to resolve the issue is to go into more debt. However, that creates one more monthly payment and less money you can dedicate to paying off your existing debts.

By setting a little aside each month according to your budget, you can create a rainy-day fund for break downs, medical issues, and other unexpected problems that can put you in a bind.

However, you must be committed to building that emergency fund back up again if you use it.

This is not a one-and-done situation; your emergency fund needs to be replenished in case of another emergency or you might be driven to go further into debt.

Treat your emergency fund as if it was another creditor who you must pay each month to protect your credit. It might be just that.

By ensuring you don’t need to take out another credit card or personal loan, or to borrow against an existing asset, you’ll help preserve your ability to pay off your current debt and avoid adding more.

While your emergency fund is depleted, make an extra effort to live within your means and avoid adding additional or unnecessary expenses.

5. Use the Snowball Method

Many people live for years making the minimum, or just over the minimum, payment on all of their debts. This will drag out the payments for years as your debt builds up interest every month, making your minimum payment cover nothing but that interest.

Instead, make the minimum payments on all of your debts except the smallest one. Pay as much as you can toward that credit card or loan until it’s paid off.

Once that one is gone, tackle the next smallest debt and do the same thing.

Each time you eliminate one debt, you have more to dedicate toward the next. This allows the payoff snowball to get bigger and bigger as it rolls downhill. The fewer the number of minimum payments you have to make, the faster you can pay off the next.

Simple is not Necessarily Easy.

These might all sound like simple ways to reduce your debt, but most people do not track their spending beyond a rough estimate. Most may not even realize when they are adding more debt, or they are not impacting the debt they currently carry.

A little record keeping and restraint can go a long way toward building up your credit, which makes it easier to buy something more important. Like a bigger home for your family expansion, or a newer home that reduces maintenance or expenses.

As with the other steps above, tracking your expenses and living within your budget take commitment and discipline. However, the rewards are worth it.

By putting your money into a more financially sound investment like a house, you are creating a more secure future for yourself and your family.

Then, once you’ve taken that step, use your newfound debt management skills to pay that off too.


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