If you find yourself in debt and struggling to pay your bills each month then you should learn about how to create a debt reduction plan. Implementing such a plan can be an effective method of relieving your debt before it becomes a serious liability. Reducing your debt through such a disciplined approach is often a great way to avoid debt settlement or bankruptcy which is frequently where people deep in debt will end up.

Step 1 in Reducing Debt: Stop Creating New Debt

Before you begin eliminating your existing debts, you should make a serious effort to avoid creating new debt. The last thing that you want to do is to dig your hole deeper than it already is. Try operating on a cash basis for day-to-day expenses. Leave your credit cards home or cut them up so that you are not tempted to buy more than you can afford. You may want to keep one of your cards to be used only in an emergency.

Step 2 of Debt Reduction: Create a Budget

The next step in reducing your debt should be to understand where all of your money is being spent each month so that you can create a budget. This will require you to spend a month or so tracking every expense regardless of how small it is.

Review all of your household living expenditures logged during that period. Group your expenses into categories like groceries, fast food, entertainment, rent/mortgage, power, phone, TV/cable, internet, gas, car maintenance, etc. Evaluate the expenditures to determine if any of them can be eliminated or reduced. Eliminate all of the “nice to have” type of expenses. Reduce the other expenses any way you can. Then create a budget based on the remaining expenses, and stick to the budget like your life depends on it.

Step 3 to Reducing Your Debt: Pay Down Your Existing Debt

Once you have a budget in place for your household living expenses, you can turn your attention to paying down your existing monthly debts. Begin by inventorying all of your existing loans. Make a note of the balance owed, interest rate, and minimum 債務舒緩  monthly payment for each debt.

Armed with the information about your monthly debts, select a debt reduction strategy. There are many such strategies used to help people reduce their debt. The two most popular are:


  • Pay off debts with highest interest rate first
  • Pay off debts with lowest balance first

With both of these strategies, you make minimum payments on all of your monthly debts except one. For that one debt you make the minimum payment plus apply all excess cash you can afford each month. Once that one debt is paid off, you pick the next debt based on your debt reduction strategy. Repeat the process of focusing your resources on one debt while making minimum payments on your other debts until all debts have been paid.


While the strategy of first paying off the debt with the highest interest rate might appear to be the obvious choice to minimize the amount of interest paid over the course of your loans, it is not always the most effective plan. This approach is generally successful for those consumers who are very disciplined.

Many people who are less disciplined are more successful when first paying off the debt with the lowest balance. The reason is that they can see progress by eliminating payments sooner. They might pay a little more in interest over the life of their loans, but if it helps them to stick to the plan then the extra cost can be well worth it.