Personal Debt Reduction Strategies

Recent statistics from the Federal Reserve revealed that “the total amount of consumer debt in the United States stands at nearly $2.4 trillion” and that, based on 2010 Census statistics “that works out to be nearly $7,800 in debt for every man, woman and child that lives here in the U.S.” (Reference: ).

That’s quite a chilling stat and this over reliance on debt isn’t just restricted to the United States but instead is a cancer that has affected much of the developed world. What these humongous stats don’t do, however, is reveal the individual misery that debt can heap upon those who find themselves sliding ever deeper into a mess of credit card, overdraft, and loan debt.

The good news, however, is that it is possible to reduce and eventually eliminate debt by following a number of tried and tested personal debt reduction strategies. Let’s look then what these strategies are and how they can help an individual to lessen their debt burdens.

Review your spending patterns and cut costs through a budget:

People get into debt because they are spending more than they earn and if this issue isn’t addressed then your debt problem is just going to get worse. It’s vital, therefore, to conduct a review of your current spending to identify how much you are currently spending and what you are spending it on. The best way to do this is to look at your last three month’s worth of bank statements and then to split out the costs into spend categories such as “groceries”, “mortgage/rent”, “loan/credit card payments”, “entertainment”, etc.

What you are doing with this exercise is the building block of creating a household budget and the next stage is to identify cost reduction targets. Your aim must be to identify areas where you can cut costs and then make a commitment to do just that.

Focus debt reduction efforts on most damaging debts:

If you have a credit card that is charging 15% interest and a loan that is charging 6%, then it obviously makes sense to focus your initial efforts on reducing your credit card debt. Similarly, if you go into an unauthorized overdraft position this can be very harmful as you are likely to be charged hefty bank fees on top of the overdraft interest.

Check if you can switch debt to more competitive cards/loans:

Many people who are in debt think that no other lender would ever take them on but there are many instances where this assumption is incorrect and where their debt position could be greatly improved by switching to a credit card, checking account, or loan that has a much lower interest rate. This may apply also for your mortgage and even a 0.5% improvement in your mortgage rate may amount to a substantial saving over the course of the mortgage. Just make sure that you check whether there are any fees associated with switching the mortgage to another provider.

Increase your income:

This won’t always be feasible but there may be opportunities for you to bring in extra income, either by applying for a promotion or by taking on a weekend job. Obviously, any additional money that you can bring in will help you to deal with your debt repayments although it won’t necessarily remove the root cause of your problems, namely the fact that you have been living beyond your means.

Speak to your bank and see if they can help you address your debt challenges:

Although they may not be the most popular institutions in the world, banks have expertise in money management and may be able to help you address your debt challenges. It’s always best to engage in communication rather than try to bury your head in the sand and you may find that your local branch manager may be prepared to waive some fees if he/she sees that you have committed to a sensible plan to repay the rest of your debts.

Consider debt consolidation:

In some cases, the best way to reduce the burden of monthly debt payments may be to consolidate all your current non-mortgage debt into a personal loan. The reason for this is that personal loans generally have lower interest rates than credit cards or overdrafts, so it may immediately reduce the amount of interest that you are required to pay each month. However, you need to be prepared for the fact that paying off loans requires discipline and commitment as you don’t have the ability to miss or reduce a month’s payment.


No-one likes being in debt and it can have a devastating effect upon people’s lives. As well as the short-term monetary pain, it will also prevent you from starting to invest for your longer-term future so it is vital that you address your debt problems as quickly as possible. The main debt reduction strategy is to review and reduce costs and then use the freed up money to pay off your debt, focusing initially upon the most costly debt. Switching to cards/accounts that have lower interest rates can also help to create more breathing space and there may also be opportunities to bring in extra income. If you still feel that your debt is out of control, or will take too long to pay off, then you could consider debt consolidation to move all your debt onto a lower interest rate. Remember, also, to engage in dialogue with your bank so that hopefully they will be more sympathetic and may offer assistance to help you pay off your debt.