How to Reduce Debt and Save Money

how to reduce debt

Seems like money is all folks are talking about these days. And I guess I shouldn’t say just money, but the lack of it and all the stress that produces.

That very lack of money I just mentioned is what leads many folks to take on debt. And while debt can certainly be a good thing if used well – in far too many instances, debt is abused. Heck – even if it it’s used wisely, it just feels a little yucky. Wouldn’t it be cool to be debt-free?

Having little or no debt would certainly allow for more choices in your life. Without debt repayment, how much more money would you have to pursue your dreams? Could you work less?

Personally, I dream of no mortgage payment. It may not make the most sense from a tax standpoint, but the very idea of owning my home outright makes me happy.

So how to reduce debt?

Best Way to Reduce Debt

There are literally hundreds upon hundreds of debt reduction strategies out there. But really, it comes down to a few basic principles.

Reduce Debt by Avoiding It

This of course only works on avoiding new debt. But, I feel like we can’t miss one of the biggest factors that contribute to people and debt…attitude towards debt.

Your attitude can be your worst enemy when it comes to debt. You’ll need concrete information (income and expenses), a game plan (budget and a debt reduction strategy) to make progress, but for some an attitude adjustment is absolutely required as well.

Do either of these statements describe you?

  1. You feel like your debt is so huge or unmanageable that it’s best ignored (when you go to take on more debt you utter things like “I’m already in so far, what’s a little more?”)
  2. You use debt to finance a lifestyle you can’t really afford (you and delayed gratification are not friends).

If you don’t consciously work to change your behavior – you’ll be right back at square one before you know it. This is where simple living can be especially helpful. In most cases, a simpler lifestyle requires less money (with no reduction in happiness).

Know What You Spend

I’ve said it before and I’ll say it again – knowing what you spend is key. This is your absolute starting point whenever you want to make decisions about your finances.

Know What You Earn

You figured out what you spend, now you need to understand how that compares with what you earn. Getting out of debt is only possible if you aren’t accruing more each month.

Build a Budget

A budget is the way of putting together your income and expenses and forming a game plan. Once you have a budget in front of you – you’ll have an idea of how much money you have left to put towards building an emergency fund and reducing your debt.

Build an Emergency Fund

Most people have some debt that they acquired due to lack of an emergency fund. Did your car need sudden repairs and you had to put it on a credit card? Did your air conditioner give up the ghost in mid-July? Without an emergency fund to draw from, these situations can put you further behind.

When it comes to how to reduce your debt – one of the best things you can do for yourself is plan well. Having an emergency fund is a critical part of that plan.

Pick a Debt Reduction Strategy

I’ve done a lot of reading on personal finance, mostly because it interests me a lot. I’ve read numerous articles on different “flavors” of debt reduction. I think you can pretty much group most popular debt reduction strategies into two different styles – psychological or practical.

  • Psychological Style

For some people, it helps to reduce debt in a way that makes you feel like you’re making progress. The worst feeling is being overwhelmed. If you feel like your debt is out of control, you’ll never make headway. You gotta be in charge of your debt, not the other way around.

Because of this, some folks choose to tackle their debt in the way that feels like the most progress. Take your smallest debt and pay it off first. Once you’ve developed your budget, you’ll understand what extra you have to put towards your debt. Take that extra and divide it up so that you are making the minimum payment on all of your debts. Once that’s done – you’ll hopefully have some left. Put the “some left” towards the smallest debt. You’ll pay it off the most quickly since it’s the smallest.

Since you’re paying off debts quickly – you’ll really feel like you’re making progress. And that will help to keep you motivated!

  • Practical Style

Another more practical way to work on reducing your debt is to target the largest debt or the debt with the highest interest rate first. The progress might feel a little slower, but the rewards will be substantial (having your largest debt or highest interest rate debt gone will feel AWESOME!)


This article doesn’t address the topics of turning to others for help – and that is most certainly a viable alternative. Debt consolidation, debt counseling services, even working with your creditors to reduce interest rates are other available options.

Debt reduction is perhaps one of the hardest things you’ll take on in your quest for a more simple life. But it’s one of the most rewarding things you can do!