5 Steps To Craft Your Debt Reduction Strategy

You’ve decided to get rid of debt, and you’re ready to fully commit to team #debtfree. But creating a solid debt reduction strategy can be a challenge. This is especially true if you have a mix of revolving and installment debt, including student loans.

Also, it’s easy to get caught up on which method to choose from, such as the snowball method or avalanche method.

Instead of getting hung up on different payoff methods, use these debt payoff tips to craft your debt reduction strategy.

Create your debt reduction strategy with these 5 steps

It’s easy to feel like you’re drowning in debt, but the most vital thing you can do is take action! Start your debt reduction strategy with these 5 tips to start tackling your debt.

1. Write down all your debts

With the myriad of ways you can get into debt, it’s no surprise that you might not actually know exactly what type of debt and how much you owe to each.

The first step in your debt reduction strategy is to list all of your debts. Track your account statements and order a copy of your credit report.

Check the National Student Loan Data System for your Federal Student Loan debt obligations and their associated servicers.

Make note of the following for each obligation:

Current outstanding balance
Status of the debt (payment satisfied to date, in deferment, delinquent, etc.)
Type of interest rate (fixed or variable)
Annual interest rate
Minimum monthly payment requirements

With this information, you will get a clear picture of your total debt and the monthly minimum payments you need to include in your baseline budget.

2. Calculate the daily cost of your debts

Figuring out how much your debt is costing you can be one of the most motivating debt payoff tips you can use. When you see how much money you are spending on your debt, it will motivate you to pay it off as fast as possible.

The annual interest rate on your debts only tells part of the story when it comes to the cost of your debt. You should have a firm understanding of how the interest builds upon the outstanding balance for every debt you have. Calculate this on a daily basis and for the frequency at which it is billed.

For example, a $10,000 student loan at a fixed annual interest rate of 10%, that’s in deferment for 180 days; the daily interest that accrues is $2.74.

By the end of a 180-day period, the interest will amount to $493.15. This amount can be added to the principal balance if it’s not paid before the deferment period ends through the process of capitalization.

Revolving debts, like credit cards and lines of credit, have their own interest accrual and capitalization rules.

Review your loan promissory notes and the agreements associated with your credit card and other debts to confirm the applicable terms and conditions. And under what circumstances accrued interest can be capitalized.

Understanding these costs will also help you decide which debt reduction strategy will get you out of debt faster.

3. Choose one priority debt to start

Once you have budgeted for your minimum debt payments and you fully understand how the daily interest costs on those debts work, choose one priority debt to start making extra payments on.

Do this by identifying the debt that annoys you the most. Then, throw as many extra payments toward it, as often as possible, until it’s paid off.

After that first debt payoff win, review your remaining debts and consider the next most annoying or most costly debt, and tackle it. Then, repeat the process until your debt is gone.

When deciding how to tackle your debt, the most important thing to remember is to use the best method for you. Some use the avalanche method to pay off high-interest credit card debt first to save the most money possible.

Other people would rather use the snowball method where you start with the smallest balance first and move to the next after paying the first one-off. Don’t procrastinate deciding; simply pick what works for you and start.

4. Consider consolidating debt

When it comes to choosing your debt reduction strategy, you may want to consider debt consolidation. However, it’s important only to do this when it benefits you financially.

For instance, you can consolidate all of your high-interest credit cards into a lower-interest personal loan or a 0% APR credit card.

It’s essential to calculate how much you will save and the length of time it will take you to pay it off before proceeding. Either way, you still need to make an accelerated payoff plan to destroy your debt faster.

5. Increase your income to help your debt reduction strategy

One of the best debt payoff tips you can utilize is to increase your income. Finding ways to bring in extra money can help you pay off debt faster. Even earning an extra $200 a month could help you pay $2,400 off in debt in just a year!

You can increase your income by asking for a raise, starting a side-hustle, or getting a part-time job. This will help you speed up reducing your debt so you can stop paying all that money in interest.

Examples of debt payoff calculators you can use

To help you create a debt reduction strategy, we’ve rounded up the best debt payoff calculators for you! These debt payoff calculators are simple to use and show you how much you will pay in interest and how many months it will take to pay off your debt.

Here are our top three favorite calculators:


Start calculating your debt and making your plan with these easy-to-use debt payoff calculators.

Use these tips for a successful debt reduction strategy

Use these debt payoff tips to help you figure out your total debt and accomplish your goal of being debt-free. Remember, always aim to cover the interest that builds up on your debt every month, even if your lender doesn’t require it.

In addition, don’t ignore how delaying the payoff of debt with higher interest and higher principal balances can impact the length of your payoff.

With that said, be flexible enough on your journey to becoming debt-free, to switch the methods available to you on the way. Most of all, use each win from paying off a debt to get you to the other side!

The post 5 Steps To Craft Your Debt Reduction Strategy appeared first on Clever Girl Finance.

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