How to Shrink Debt

Reducing debt can allow you to achieve your goals sooner.

Reducing debt can allow you to achieve your goals sooner.

Heavy debt can put a roadblock in front of your goals and get in the way of your dreams of buying a home, starting a family, changing careers or starting your own business. Unless your debt resulted from a one-time misfortune, begin by changing your ingrained habits to start whittling away at the total. Then a systematic repayment strategy can help you get out from under debt faster.

Stop charging and borrowing immediately. If you keep borrowing, your new debts will cancel out your repayments and keep you from making progress.

Inspect the damage. List all your debts, including the mortgage, college loans and credit card debts. A clear record helps you make a plan for paying off your debts, and the shock of seeing it will motivate you to follow through.

Seek lower interest rates or better lending terms. Call the credit card companies to ask for lower rates, or transfer balances to cards with a zero percent teaser rate on transfers. Choose a repayment plan on federal student loans that frees up money to pay off higher-interest debts first. Reduce mortgage payments by refinancing at lower interest.

Listing your income and outgoing for a typical month can free up extra money in your spending budget. Then try and make cuts to regular expenses. For example, cut luxury spending, such as cable TV, eating out and nonessential items.

Put your budget surplus toward reducing debt each month. Pay the minimum on all debts, and put the extra money on the debt that carries the highest interest rate. Frequently this is a credit card bill. This system is the fastest, according to Jane Bryant Quinn, author of "Making the Most of Your Money Now."

Make one-time payments on your debts. Take the money from savings accounts or income tax refunds, sell stuff you aren't using at a yard sale or online and return newly-purchased items for a refund. Put the money from all areas and put it toward your debt.

Increase your income by getting overtime or a part-time job. Put the extra money earned toward debt repayment.

Continue putting extra money on each remaining debt in order of interest rate until all are repaid.

Pay extra on the mortgage each month once other debts are paid off and you have funded other essentials. Financial expert Dave Ramsey recommends waiting until you have enough in an emergency fund to live on for at least three months. Also wait until you have set up regular contributions to retirement and college accounts, if applicable.

Items you will need

  • Income
  • Things to sell


  • Dave Ramsey also recommends an alternate way of prioritizing debts called the "debt snowball." For this method, put your monthly surplus toward paying off the debt with the smallest balance first, and then the next smallest and so on. This gives you a psychological boost as each small debt disappears. If you need help, get it at low cost through the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.


  • If you don't stop borrowing, you won't get off the debt merry-go-round. Don't get ripped off paying high fees for debt reduction services, advises Jane Bryant Quinn. The expense will just put you in deeper.

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