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5 Steps to Reduce Your Debt: Do-it-Yourself Debt Reduction

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5 Steps to Reduce Your Debt: Do-it-Yourself Debt Reduction

With a little dedication and prior planning, it is possible to reduce your debts on your own. Why pay debt counselors and consolidation agencies fees for things you can do yourself? shows you the tricks of the trade and the fastest way to reduce your debts on your own.

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Step 1: Evaluate Your Debts

Collect all of your financial documents and print out your free annual credit reports. Use’s free credit report card to see exactly where you stand to see exactly where you stand. This is an important step toward debt recovery and one that people are often scared to take. On a piece of paper, write down the balances, interest rates, and monthly amount due for each of your debts. Include your auto loans, personal loans, payday loans, credit cards, and other debts. You should also make note of any annual fees on your credit cards. You don’t need to include your mortgage loan or student loans at this time. These loans have relatively long terms and low APRs so it is better to focus on paying off your other debts first.

Step 2: Look at Your Budget

After you have collected the information about your debts, you should take a look at your monthly budget. Write down your monthly income after taxes and subtract your rent/mortgage payment from this amount and other monthly expenses such as childcare, student loan payments, insurance, utilities, and groceries. Once you have subtracted all of your expenses, calculate how much you have left to pay off your debts. If this amount is too small, look for ways to reduce your spending. Consider turning off your cable subscription or carpooling as ways to cut back temporarily. The more you can pay towards your debts each month, the sooner you will be debt free.

Step 3: Make a Plan

Now that you know all about your financial situation, it’s time to create a plan for reducing your debts. Use your information from Step 1 and 2 to fill in the following chart. Subtract your minimum debt payments (Step 1) and monthly expenses (Step 2) from your monthly income after taxes. The remaining amount should be used to pay off the debt with the highest interest rate and the highest balance.

Example Your Plan
Monthly income after taxes $2,800 $
Minimum debt payments (1) – $1,800 – $
Monthly expenses (2) – $400 – $
Remaining amount goes to the debt with the highest rate and balance = $600 = $


Continue this cycle each month until the debt is paid off and then move on to the next highest rate/balance account. This may seem like an odd process, but it is the fastest way to reduce your debts. During this time, you should not add any new charges to your credit cards. Also, try to increase the amount you pay toward the most expensive debt each month. Track your progress with a chart like this:

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Payment Goal $600 $600 $625 $625 $650 $650
Actual Payment $625


Step 4: Start Negotiations

While you are starting to follow your repayment plan from Step 3, you should contact your creditors and lenders to see if you can improve the terms on your debts. You may be able to lower your interest rates or negotiate a reduced settlement on some debts by speaking with the customer service department. It is especially easy to negotiate the terms of debts that are charged off (dismissed) by the creditor or in collections already. Also think about moving some of your credit card debts to new accounts with lower interest rates. Moving a balance to a credit card with a 0% introductory rate for 6-12 months can help you save a lot on interest. Just be sure to keep each of your credit card balances below 35% of the credit limits to avoid damaging your credit score. During this time, investigate if consolidating your debts into a personal loan or home equity loan could help too.

Step 5: Follow-Through Your Debt Reduction Plan

Do your best to meet your repayment goals each month. It’s okay if the amount you put toward your most expensive debt each month varies. Just try to consistently put as much as possible toward your debts. Signing up for an automated payment system and keeping a chart of your progress on the refrigerator can help you stay on track. When you reach major milestones, be sure to celebrate your success. Before you know it, you’ll be debt free!

To learn more about managing debt and how to reduce it, read more from our experts by visiting our Managing Debt Learning Center.

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  • Kelly

    I owed over $132.000.00
    to the I.R.S solely because of the illegal actions of my ex-wife, who cunningly
    and illegally manipulated things to her benefit. I negotiated a settlement
    wherein they accepted approximately $1,200.00 through what was known as
    “Offer And Settlement Through Negotiated Settlement”. The
    procedure was arduous. The offer that I.R.S. accepted entailed
    payment of the $1,200.00 in $100.00 per month payments each and every month for
    one year. I paid the full amount and the I.R.S. discharged the
    debt. WAHOO!! I am a free man. As they say, the only things
    in life that are certain are death and taxes!! I can personally attest to
    the fact that the plan set forth in this article are absolutely true!!!

    • cjjohnson

      I would love to know how you got them to settle I owe 13,000.00 and they will not settle with me I pay 150.00 a month and it never goes down plus they get my refund for the last 3 years 2,000.00 a year..

  • Coral Mercintile

    If you want to reduce your debt then you should reduce your spending especially when you don’t have much budget or authentic source for debt repayment.

  • hassan

    Many people think that they can get out of debt themselves. That they
    don’t need help. While it is true that there are many things that
    someone can do to help themselves get out of debt, there are also
    situations where people simply need help, where things that are out of
    their hands have affected their life and they simply can no longer meet
    their financial obligations, as much as they would like to.

    • Credit Experts

      Agreed. Sometimes bankruptcy is the best solution.

      • cjjohnson

        like when you have thousands of dollars in medical bills that your crappy insurance didnt pay…

  • cjjohnson

    how good is the 3/2/240 rule for filing bk against back income taxes?

    • Gerri Detweiler

      I am not sure what you mean by how good it is. If you qualify it may be a way to put tax debt behind you.

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