The seemingly impossible task of paying off mountains of debts is enough to make a lot of people bury their heads in the sand and ignore the problem. Many people believe it can’t be done on their incomes or that their debts are simply too high.

Don’t give up hope. Debt reduction really can be a lot easier than you think – as long as you know how to do it!

Debt Reduction Step One

Add up all your the income that comes into the household each week. It’s important to have an accurate figure as to how much cash you have to work with in order to create your debt reduction plan.

Always work your bill payments around when your income arrives - so if you get paid weekly then work out the rest of your plan on a weekly basis. If you get paid monthly, then work on monthly figures.

Add it all together and write down the total amount of income that comes into your household.

Debt Reduction Step Two

Tally up all your oustanding debts and write them down on a piece of paper. Beside each figure write down the amount of interest you’re being charged for every balance.

Then write down the minimum monthly repayment the bank, lending company or credit company is expecting you to pay. Add up how much your minimum repayments come to.

Don’t be tempted to add up the total of your outstanding balances yet. Just add up what your total monthly payments are for now.

Debt Reduction Step Three

Look carefully at your total income figure and your total repayment figure. You’ll notice that no matter how hard you seem to struggle, your income should still be larger than your total amount of repayments. The difference between the two figures is the amount you have each pay period to pay for living expenses. Things like groceries, gas, electicity and water, insurances and just general daily living come out of this gap.

If the gap between your income and repayments is only very small, or even worse, if there is no gap, then you are in serious need of emergency debt reduction today. You will need to find a way to reduce the cost of your repayments and cut back on your everyday spending in order to make sure you’re not getting into even deeper financial trouble.

Debt Reduction Step Four

In an earlier step you should have written down the interest rates you’re being charged on your outstanding debt balances. Beginning with the highest interest rate being charged, call your lender or credit company and see if they’ll negotiate to lower your current interest rates.

If they won’t agree to cut your rates then shop around and compare other lenders to see if any are willing to offer cheaper rates on balance transfers.

Some people may find they’re unable to transfer balances to other lenders offering those great low rates. If this happens, consider a debt consolidation personal loan and roll your balances together into this loan. You’ll find that a debt consolidation loan will be charged at a much lower interest rate than most credit cards, so you should have extra money left at the end of each month or pay period.

Debt Reduction Step Five

Reduce your payments on all your debts right down to the minimum payments your creditors are asking for. This sounds like backwards logic but there’s a reason behind the seeming madness.

If you get paid weekly, divide each of your minimum monthly repayments by 4. Just use a regular calculator and don’t change the calculations. Just look at what your creditor wants you to pay each month and divide by 4. This is the new amount you’ll be paying every week instead of each month.

Credit cards charge interest on your balance daily but don’t show your interest charges until the end of each month. When you pay monthly this gives the credit card company a chance to charge compounding interest on any interest they’ve already charged you for 30 days.

By paying weekly instead of monthly you’ll be able to reduce the compounding interest effect from leaving your balance untouched. Instead your balance is being slowly chipped away every 7 days.

Your interest charges will become slightly lower every month because of this effect, which saves you money and helps to reduce debt even faster.

Debt Reduction Step Six

Begin with your smallest outstanding debt. This should be the loan or credit card with the lowest balance left to pay off.

Focus on this debt first. This will be the first debt you’ll work on clearing completely.

You should already be paying only the minimum monthly payment on every one of your outstanding debts but every payment will now be made weekly instead.

There is a reason for focusing on the smallest debt first rather than the one with the highest interest rate. It’s because most people need the encouragement and feeling of accomplishment you’ll feel when you pay off your first debt on your own.

When you’ve paid off that first debt, repeat the process on the next outstanding debt. You should already be paying this debt weekly as we went through in a previous step.

Take the amount of your payment from the first debt you already paid off. Add this amount to your minimum weekly payment on the next debt in line.

You’ll be surprised how quickly you’ll reduce debt by restructuring your budget and your repayments just a little bit.

These days it seems there are almost as many debt reduction plans as there are different ways to get into debt in the first place. So which debt reduction plan is the right one for you?

Trying to reduce your debts by using the method or system that worked for a friend is pointless. This is because their debt levels and income levels will not be the same as yours, so how can a plan that worked for them possibly work for you in the same way?

It’s important that you find the right debt reduction plans to suit your own income, your own levels of debt, your credit history and your unique financial circumstances

You could decide to use the snowball method, or try paying off the debts with the highest interest first. You could decide to try debt consolidation to roll your outstanding balances into a new debt that you have to pay off or you might even consider debt settlement options to try and get rid of your debts completely.

Despite the type of debt reduction plans you choose, there are some things that hold true for all of them. In order for you to reduce your debt and regain control of your financial situation then here are some things you will need to think about to make your debt reduction plans work positively.

No More Debt

The most effective debt reduction plans are those that actively help to lower your balances. This means you need to stop charging things to your credit cards immediately and don’t be tempted to apply for credit anywhere else. The object is to regain control of your money, not continue to increase your debt.

Payment Reductions

You might have noticed that the minimum repayment amounts on most credit card bills are different each month. This is because credit card interest is charged on the balance you owe each month. This means that as your balance reduces, you’ll notice your payments begin reducing too.

If you have any accounts with payments that change each month or begin to look like they’re getting lower, then ignore the minimun payment amounts. Continue paying the same amount you were paying when your balance was higher. This tactic will help you’ll pay off your balance much faster and save you thousands in interest charges.

More Than Minimum Payments

Never be tempted to pay just the minimum payment shown on your accounts. To really make debt reduction plans work for you and get out of debt for good, you’ll need to find a way to pay more than the minimum payment shown on your statement each month.

Budget Breakdown

Nobody likes the word ‘budget’ but in this case consider breaking down your budget into smaller sections. Most people make their credit card payments or personal loan payments once a month.

Instead, try breaking down your payments to match your pay periods. Most people are paid every second week these days, so divide your minimum monthly payment by 2 and pay this smaller amount each time you get paid. You’ll find it easier to stay focused on your debt reduction plans if you make the payments smaller and easier to manage.

Motivation

The problem with many debt reduction plans is that people lose motivation and fall back into their bad spending habits that got them into debt in the first place. Find ways to keep your motivation levels high.

Add up how much you’re paying in just repayments on consumer debts right now. When you look at the total figure you pay out every month in repaying debts, many people are a little shocked.

Imagine that you had no repayments to make and all that money was yours to spend every month. You would find it much easier to get by financially with that extra cash in your pocket, wouldn’t you?

Debt reduction plans should be designed to help you reduce your debt and free up the money you work so hard to earn each week. Always remind yourself of the benefits you’ll receive once you get rid of those debts and it will help to keep you motivated.