How to reduce debts 11 steps you can take

how to reduce debts

You can reduce debts in 11 steps by budgeting your income, consolidating debt, avoiding new debt, building an emergency fund, and taking other steps. Reducing your outstanding debt can help you increase your monthly income and savings. 

According to US debt statistics, almost every American has some debt. On average, millennials (ages 24 to 39) have $78,396 worth of debt, while Gen Z (ages 18 to 23) has $9,593.1 However, some of us may have more debt than we can handle or simply want to be debt-free. 

Reducing debts may seem challenging if you are juggling a lot and are overwhelmed. However, there are some easy ways to get started. Continue reading to learn more about a few simple strategies to reduce debts. 

Debt Repayment Strategies

There are some debt payment strategies out there that can help you pay off debt aggressively and save money. You can start putting money aside for emergencies by tracking your debt and monthly expenses. According to the Federal Reserve, 54% of surveyed adults had set aside money for three months of expenses in an emergency savings fund.2 

Consider using one of these debt repayment methods to pay off your debt and start keeping more money in your pocket:

The Avalanche Method

The debt avalanche method is an aggressive way to pay off high interest installment loans and credit card debt. With this method, you will make monthly minimum payments on all your debt balances and focus on paying off as much as possible with your highest-interest debt. And once that debt is paid off, you move on to the following highest-interest credit account and so forth. This method usually works well if you are trying to pay off a lot of credit card debt.

The Snowball Method

The debt snowball method is similar to the avalanche method, but instead of tackling the high-interest debt first, you will start with the highest debt amount and so on. With this method, you can gain momentum, which can be motivating, especially after you pay off your highest debt. This method is ideal for borrowers who have multiple student loans, payday loans, or cash advance loans

Paying More Than the Minimum Amount To Get Out of Debt

Paying more than the minimum amount due every month can be another good way to pursue debt payoff. You can decide on your own which debts you want to do this with, or you can do this with all of your monthly payments. You can also choose how much more you want to pay each month. With this strategy, you’ll pay off your debts much sooner and reduce the interest you will have to pay. 

With all these benefits, it won’t hurt to try this method, as long as you are mindful of how much money is coming in and your other necessary expenses. So, consider paying more than the minimum payment for debt reduction. 

Using a Credit Counseling Agency

A credit counselor or credit counseling agency can help you figure out a debt repayment strategy if you are having trouble doing it independently. You’ll need to provide them with an accurate account of your financial situation, and they will help you from there. 

You can find many federally funded organizations, which means no cost to you. These services may be available in person, online, or over the phone. Start with one of the following options:

  • The Financial Counseling Association of America 
  • The National Foundation for Credit Counseling

Using All Extra Income on Your Debt Payments 

This method is one of the simplest forms out there; all you have to do is allocate any influx of income to pay off your debts. For example, an income bonus, your tax refund, gifts or rewards, or anything else that means more money should all go towards paying off your debts. 

Debt Consolidation, Balance Transfers, and Debt Refinancing

Whether you have student loan debt, credit card balances, medical bills, a personal loan, a home equity loan, or any other type of loan, you may be able to get a lower interest rate on it, making it easier and faster to repay. You can do this with debt consolidation (for multiple debts) or refinancing (for one debt). Balance transfers are usually used for credit cards. So how exactly do debt consolidation loans, balance transfers, and debt refinancing work? 

Learn more about these options below: 

Consolidating Debts

Debt consolidation is the process of paying off multiple debts with one single loan. So, instead of having multiple monthly bills with different interest rates, you’ll have a single payment. 

A debt consolidation loan will help you pay off those debts; these loans are available online and in person. This process aims to get you better interest rates and a more manageable repayment plan than you previously had with your credit accounts. Keep in mind that it’s possible to get a debt consolidation loan with poor credit. 

Debt Refinancing

Debt refinancing is using one loan to pay off another and then paying back the new loan. Similar to consolidating debts, refinancing’s goal is to get a lower interest rate and one monthly payment instead of several. You can use almost any credit account to refinance existing personal debt. 

Balance Transfers

Balance transfer cards are credit cards that allow you to transfer existing credit card bills/balances from several different credit card issuers (if needed) into one single credit account. 

The convenient thing is that you may be able to find a balance transfer that has very low or sometimes 0% interest rates for an introductory period! This can be a great way to jump-start your debt reduction goal! However, with lower credit scores, you may not be eligible for a balance transfer on your own, but a cosigner or co-borrower can help. 

What About Bankruptcy and Debt Settlement?

Bankruptcy and debt settlement are both forms of debt relief but are usually the last resort. Below is more information on each: 

FeatureBankruptcyDebt Settlement
DefinitionA legal process where individuals or businesses unable to repay debts seek relief from some or all of their debts.A process where a debtor negotiates with creditors to pay a lump sum that is less than the total amount owed to settle a debt.
Types– Chapter 7 (Liquidation Bankruptcy) 
– Chapter 13 (Reorganization Bankruptcy)
No formal types, but varies based on negotiation terms.
Impact on Credit Score– Significantly negative impact
– It remains on the credit report for 7-10 years.
– Negative impact
– Less severe than bankruptcy, but still substantial.
Duration– Chapter 7 typically takes 3-6 months
– Chapter 13 can take 3-5 years.
Varies based on negotiation but is usually quicker than bankruptcy.
Public RecordYes, bankruptcy filings are public records.No, debt settlements are not public records.
Debt Relief– Chapter 7: Can discharge most unsecured debts.
– Chapter 13: Reorganizes and partially discharges specific debts.
Partial relief; only the agreed-upon amount needs to be paid.
Eligibility– Chapter 7: Must pass a means test.
– Chapter 13: Regular income required.
Depends on the willingness of creditors to negotiate and accept settlement offers.
Legal ProtectionProvides legal protection from creditors (automatic stay).– No legal protection.
– Creditors may still pursue collection or legal action.
CostsLegal fees, court fees, and counseling fees.– Fees to debt settlement companies if used.
– May also owe taxes on the forgiven debt.
Future Credit and LoansDifficult to obtain new credit or loans for several years.Easier than after bankruptcy, but still challenging due to credit impact.

Things You Need To Do When Prioritizing Debt Payments

If you do pursue debt reduction, there are some things you can do to ensure that you make progress! Here are some things to consider for the best outcome: 

  • Avoid new debt if possible, and educate yourself on good debt vs. bad debt. 
  • Build an emergency savings fund to protect yourself from going into further debt in the future. 
  • Increase your income if possible!
  • Learn about good and bad spending habits, and determine whether you need a plan to help yourself. 
  • Educate yourself on the basics of credit scores. 
  • Keep paid-off accounts open! 
  • Avoid co-signing or co-borrowing on a loan. 

How Does Debt Impact Your Credit?

Any debt you take on will appear on your credit report; information on the lender, amount, and payment history will all be a part of that. A few ways debt impacts your credit scores are through your credit utilization and debt-to-income ratio. 

Your credit utilization measures the amount of existing debt you have in relation to your available credit. The more debt you have, the higher your ratio; anything above 30% will harm your FICO Score. While your debt-to-income ratio is the amount of debt compared to your income. Having a lot more debt than what you make will be harmful. 

Payment history on your credit accounts will significantly impact your credit scores. A single late payment will harm your score and show up on your credit reports for up to seven years. And having more debt than you can manage will make it more likely for missed payments and even loan default! 

FAQs About How To Get Out of Debt 

What is a debt consolidation loan and how can it help me get out of debt?

A debt consolidation loan combines multiple debts into one personal loan, usually with a lower interest rate. This can simplify your monthly bills and potentially reduce the total amount you pay over time.

Is it better to make minimum payments or pay more towards my credit card balances each month?

While minimum payments keep you in good standing, paying more than the minimum can significantly reduce your debt faster and save you money on interest. 

Can I still get out of debt if I can only afford minimum payments right now?

Yes, even if you’re currently limited to minimum payments, strategies like the debt snowball method can help you gradually increase payments and get out of debt over time.

How do I choose between a personal loan for debt consolidation and balance transfer credit cards?

Consider a personal loan if you have various types of debt, as it can consolidate multiple debts into one monthly payment. Balance transfer cards are ideal for consolidating multiple credit card debts, especially if you can take advantage of a low introductory interest rate.

What’s the difference between the debt snowball and avalanche methods?

The debt snowball method focuses on paying off debts with the smallest balances first, while the debt avalanche method prioritizes debts with the highest interest rates. Both aim to streamline your monthly payments and reduce total debt.

How can credit counseling agencies help me manage my debt?

A credit counseling organization can provide expert advice, help you understand your options, and may assist in setting up a debt repayment plan that suits your financial situation.

How can I determine if a personal loan is the right choice for consolidating my debts?

To decide if a personal loan is suitable for you, compare the interest rates and terms of the loan with your current debts. If a personal loan offers a lower overall interest rate and manageable monthly payments, it can be an effective way to consolidate various debts into one payment, making your financial management simpler and potentially less expensive in the long run.

Should I consider personal loans to pay off high-interest credit cards?

Yes, personal loans can be a good option to pay off high-interest credit cards, especially if the installment loan offers a lower interest rate. A lower rate can help you manage your monthly payments more effectively.

What should I do if I’m struggling to keep up with monthly payments on multiple debts?

First, consider contacting your creditors to discuss your situation. You might also explore debt consolidation options or seek advice from a credit counseling agency to find a suitable debt repayment method.

Should I pay more than the minimum on personal loans?

Absolutely! The minimum payment is the lowest amount of money you can pay monthly without credit score damage. But increasing the minimum payment can reduce the principal balance faster, shorten the loan term, and save you money on interest. This approach can accelerate your journey to becoming debt-free. Just be sure to check if there are any prepayment penalties associated with your loan.

A Final Summary of How To Get Out of Debt From CreditNinja

There are plenty of ways to get out of debt quickly. Borrowers can use a repayment strategy, consolidate their debt, or file for debt settlement or bankruptcy. The best option for you depends on the total amount of debt you have, your income, monthly expenses, and other factors. 

CreditNinja aims to be one of the best online resources for borrowers who want to improve their personal finances. That’s why we offer articles on almost every financial topic. Check out the CreditNinja Dojo to learn the difference between a credit card vs debit card, how to increase your credit limit, and how to get your free credit report!


  1. The average American has $90,460 in debt | CNBC
  2. Report on the Economic Well-Being of U.S. Households in 2022 | Federal Reserve
  3. What is credit counseling? | Consumer Financial Protection Bureau
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