5 Steps to Reduce Debt


Debt is a four-letter word that nobody likes to talk about. It's a dirty little secret. Most of us have it, but we'd just prefer not to talk about it. Ever. What's the deal with being so tightlipped about debt? There's a social stigma attached to debt. If you're in debt, then obviously, you're financially irresponsible, right? Maybe, but debt is sometimes a necessary part of life. Think: student loans. How you accumulated debt isn't as important as how and when you pay off debt. If you've found yourself in debt, then it's time to look a long, hard look at your finances, and come up with a solid strategy to get out of debt.

5 steps to reduce debt:

1. Create a budget

The first step to reducing debt is to create a budget. Your budget should include all your regular bills/expenses as well as any sporadic or emergency expenses. Write everything down. Then, write down your monthly income. If your monthly income doesn't cover your monthly bills, then you're living beyond your means, and you need to stop living that way. Living beyond your means is not only financially reckless, but it's also unsustainable. Now, if you are living within your means, then you can begin to formulate a plan to pay off debt.

2. Reduce Expenses

After you've created a budget, you need to shave off expenses in order to reduce debt. Start with non-essential expenses like entertainment and dining out. It's nice to treat yourself to leisurely activities like going to restaurants, but is it necessary to dine out three times a week? Are you still spending $5 on coffee every morning? Are you subscribed to fashion magazines when you could simply browse their websites instead? You don't have to give up your current lifestyle to save money. You just have to be smarter about how you maintain your current lifestyle.

3. Save, Save, Save

In order to save more money, you have to spend less money. Sounds simple, right? Maybe, but it's also easier said than done. The key to saving money is to either spend less money or make more money. If you can't make more money, then you need to spend less money. Once you've reduced all non-essential expenses, you need to start paying yourself first. Set aside an amount on every paycheck, and pay yourself first. If you can't set aside 20% of your paycheck for savings, then set aside 10%, 5%, or even 1%. Think about this: if you're saving $100 every month, then even that eventually adds up to $1,200 after a year! When it comes to savings, every little bit counts.

4. Pay More than the Minimum Requirement

The only way to reduce debt quickly is to pay above the minimal requirements. This applies to all your debts whether it's student loans, credit card bills, or your car payments. If you can't pay beyond the minimal requirement for all these bills, then you need to pay off the highest priority bills first. Maybe you only have 5 grand left to pay on your car, and then, you're free of that debt. Focus on paying off that debt aggressively, and then, you can shift your focus to paying off other debts just as aggressively.

5. Ask for Help

If your debt is simply too overwhelming to handle, then you need to ask for help. Can't afford to pay off your student loans? Talk to your lenders about deferring payments. If you're having difficulties paying off your credit cards, then check with the credit card companies for payment options. If you're truly struggling with your finances, then it's time to seek out professional help (i.e. financial advisors) or personal help (from family and friends). Sometimes, drastic action is required in order to get your finances back on track. Maybe you need to declare bankruptcy because you're out of other options. Maybe your other options include giving up your apartment lease altogether so you can save up and get back on your feet. Don't be afraid to ask for help. What do you have to lose? The worse case is that people say no. Best case? They say yes, and they help change your life.

Debt isn't the end of your life. In order to reduce debt, you need to educate yourself financially, and then, formulate practical plans that will help you get out (and stay out) of debt. Your financial education will also require a bit of soul-searching, too. You need to reexamine your relationship with money, and then, start to build a new relationship with money -- one that keeps you happy, healthy, and debt-free.