6 Smart Steps to Tackle your Debt

6 Steps to Reduce Debt

Step One:  Know your Budget 

Analyze all your money: income, savings and money owed.  Look closely at recurring payments, one time bills, repeating quarterly payments etc.

Remember to calculate your cost of living expenses for the month.  How much do you really spend, rather than what you think you spend. 

Find out the total amount of money you owe. 

Pay attention to exactly what money is coming in and how often. Most people probably know this number already.  If you have variable income, this number will be a bit trickier to estimate.  You need this exact income number to know how much you have available at the end of each pay period to pay off debt.

When you have the total numbers for how much money you owe and how much you earn, it is time to make a strategic payment plan.

For more details and suggestions about creating a budget, see This Post.

Money Tip 2 Prioritize Debt Organize & Prioritize your Debt

Which is most the important debt to get rid of first?  What debts or bills can be combined?  Which debts can be eliminated the fastest?  Which debts are costing you the most in finance charges?  When you ask yourself all these questions, it helps you make educated financial decisions.  When you prioritize your debt payments, it is easier to get rid of them.

For more about the Debt Avalanche payment method, read This Post.

For many years, I have tracked my income and debts on spreadsheets.  This debt tracking helps me stay accountable for my own spending, savings and debt management.  Before I did this, I fooled myself by thinking, I didn’t owe too much on credit cards.  The fact was that I did, but since I didn’t see the numbers in black and white, it was easy to be in denial.

The amount of money credit card companies can charge you for APR can waste hundreds and thousands of dollars each year.  If you haven’t looked at this number, now is a good time.

Since I began tracking all my spending and debts, my finances have improved greatly.  I know exactly what I have to spend and how much money I owe.  I no longer waste money on finance charges because I wasn’t noticing them.   Since I have been paying more attention to my finances, my debt has gone down, my spending is smarter and my savings has increased.

Debt Challenge:  Calculate the interest charges on the credit card you use the most.  Take 12 months of statements and add up all the finance charges you paid for the year.  Is the total number in the hundreds or thousands?  Why are you wasting this money?

Make a plan to fix this by using a better card or transferring the debt until you can pay it off.  Don’t incur new debt until you pay this debt off.  If your finance charge number was less than $100 for the year- good for you!  You are managing your debt nicely!

Monet Tip 3 Reduce SpendingReduce Costs & Spending 

How can you reduce your spending?  Are there some short term or long term changes you can make to save some money?  Look at your debit card, can any spending be reduced?  Try a no spend weekend or week.  There is nothing to lose, only money to gain!  Even better if you teach yourself new frugal habits, you wont go back to spending more money!

I notice that when I find new ways to save money temporarily, they usually become permanent habits.  The hair salon I was going to was posh, popular and very expensive.  It was very nice, but not really necessary.  To save money, I found a more affordable salon.  My haircut does not “look” less expensive, so I stuck with the less expensive salon.  The same goes for hair color, nails, waxing, clothing etc.  If I can get the service and pay less money, that’s smart.

Money Tip 4 Increase IncomeIncrease your Income 

Are you able to add some more income?  This is the magic of the side hustle.  Earning just a little extra money each week or each month can add hundreds and thousands to your budget.  Other than asking for a raise at your current job, you can consider adding another income stream.

Some current popular side jobs include: Lyft or Uber driver, childcare, senior care, various online jobs, selling used items, house cleaning, tutoring, music lessons, house & animal sitting and delivery jobs.  Earning just $50 extra per week adds $2600 to your bank account each year.

For more ideas to earn some extra cash, Read This Post.

Money Tip 5 Boost your Savings AccountsAssess your Savings Accounts

Are you putting your money to work? 

Make a spreadsheet to watch your debt go down and savings go up!  To me this is a game I love playing now!  If you haven’t been in the habit of saving some money, any time is a good time to start!  If you have some money sitting in a bank savings account earning only a few pennies each month, you might consider a change.

There is always more risk involved when you have money in market related accounts.  If you have some money to put to work for you, it becomes a passive income stream.  At the very least you should have some emergency money set aside.

Read more about setting up Emergency Funds in This Post.

Money Tip 6 Avoid More DebtDon’t incur new Debt 

I certainly don’t want to make too many purchases on credit and constantly incur more debt.  However, there are times when it makes sense to use a credit card or rewards account for purchases.

Our new couch set is an example: we desperately needed some new living room couches and waiting too long wasn’t really an option.  I had some money set aside but not the full amount.  Some of the furniture prices are ridiculously high so we did a lot of shopping around.  I don’t believe I need a couch that costs more than my son’s used car!

Once we found a reasonably priced couch and love seat, we made the purchase using my favorite rewards card, Marriott. Read more about maximizing your rewards cards in This Post.  This way, I am earning hotel points that I constantly use and not paying for the couch right away.  The same day I make the purchase, I use my online banking to set up a payment to that card a few weeks later.  In this case, I had most of the money set aside already, so I sent a big payment.  By the time the next bill came around I had the balance ready to send and I was not in more debt.

Many stores offer 0% financing to entice you to make a purchase.  They make it very easy to buy right away and often spend more than you were planning!  In many cases, this is very convenient.  You can purchase what you want now and pay over the next few months without owing finance charges.  The trouble is, this still only works if you know you have the money.  Using a 0% financing offer to delay payment for a few months is only smart if you have the money.  Piling up debt that you don’t have enough money to pay for is never a smart decision.

Take action to fix your finances now!  Start on any step you like!  Reduce spending, add income or analyze your budget.  You have nothing to lose but your debt payments!

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  1. Great post! It’s amazing how much money is “wasted” when we’re not paying attention to it.
    Great suggestions about shopping around for hair & nail salons. If you do your research and are not afraid to “experiment” it’s incredible how much you can save.
    The earning extra income suggestions are quite achievable too! Thanks!

  2. Thanks for all of the great tips. My husband and I have tried many times to strategically prioritize our debt but sadly have not succeeded. Your post and ideas sound organized and we’ve both agreed to give it another shot!

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