Debt Reduction Planning

Some people come to the realization that they have too much debt before they get in over their heads, while others may reach a financial breaking point first. Getting into debt is easy, getting out is extremely tough. Too much debt is unsustainable, and it prevents you from reaching many financial goals in your life. With a bit of planning, effort and consistent work however, you can begin your personal path to debt reduction.

Stop Creating Debt

The most important first step in debt reduction planning is to stop creating new debt. If you have credit cards, cut them up and stop using them. If you have revolving credit accounts at department stores, stop visiting those stores or only allow yourself to go there with cash in hand. Make a personal pact with yourself to stop using every source of credit you have, so that you can stop increasing the amount of debt you must repay.

List Current Debts

Create a list of every single debt you currently have an outstanding balance on, regardless of how big or small the debt is. List personal loans from friends or family members, bank loans, mortgages, car finance contracts, credit cards and any other debts you may have. When you create the list, write down the name of the debt, the total outstanding balance, the minimum payment and the interest rate if applicable.

Create a Debt Payoff Plan

Reorganize your list of debts so that the smallest one is at the top, the next smallest is in second place and the next smallest is in third place. Continue ordering the debts from the smallest outstanding balance to the largest. This is the reduction order for your debt plan. Continue paying the minimum bill on every debt you have, but rearrange your personal budget so that you can pay extra on the first one in your list. The more extra you can add to that payment, the faster you will pay it off. Once that first debt is paid in full, apply the original minimum payment from it to the minimum payment of the next debt in your list. Continue rolling payments to the next debt as each previous one is paid off.

Get Counseling

If you are unable to adjust your personal spending habits or household budget in a way that allows you to contribute some small extra amount of money towards reducing your debts then you may want to consider getting professional credit counseling. Counseling is also helpful if you do not earn enough money to cover all of the minimum payments on your outstanding debts. Credit counselors can help you design a personal budget and adjust your debt payoff plan to better fit your personal lifestyle and financial limitations.