At a Glance

Are you swimming in piles of bills, like a debt-saddled Scrooge McDuck? Wondering how to get out of debt? Debt reduction can help you get out of debt and lower your interest rates. But there isn’t just one way to get out of debt. In this article, we’ll highlight seven of the best debt reduction strategies. You’ll be on your way to diving into a pool of dollar bills and gold coins before you know it.

Debt reduction can help you be proactive about paying off debt, but there isn’t any single one-size-fits-all method.

What is debt reduction?

Debt reduction refers to any plan that can help you be proactive about paying off your debt. It can help you get out of debt faster, which can save you money on interest.

Related: How to Pay Off Debt Fast with Low Income

7 best ways to reduce debt

Here are seven of the best tips for getting out of debt:

1. Create a budget

Creating a budget can help you cut back on discretionary expenses, which may be keeping you in debt. To create a budget, do a comparison of the money you make post-tax against your average monthly spend. If you see that you’re spending more than you’re saving, see what you can eliminate (e.g., that barre class membership you purchased in hopes of going but never actually use).

2. Emergency fund

Saving for an emergency fund might seem like a strange way to get out of debt—shouldn’t you be allocating any and all cash toward your debt?—but having an emergency fund can help you avoid using your credit card (and going into debt) for unexpected expenses. Aim for saving three- to six-months’ worth of living expenses, though a year’s worth is ideal.

3. Select a debt reduction strategy

Selecting a debt reduction strategy can give you a plan to pay off your bills. Three popular strategies include the debt snowball and debt avalanche methods, as well as debt consolidation:

  • Debt snowball: With the debt snowball method, you’ll focus on paying off your smallest debt amounts first. You’ll continue to pay minimum amounts on all your debts while putting any extra cash toward the smallest one. Once that’s paid off, you’ll focus on the second-biggest debt. This method is best for those who need to feel motivated to pay off their debts.
  • Debt avalanche: With the debt avalanche method, you’ll focus on paying off the highest interest amounts first. You’ll pay all your balance minimums, but extra will go toward the debt with the highest interest rate. Once that’s paid off, you’ll work on paying off the debt with the second-highest interest rate. The debt avalanche method is great for saving money overall.
  • Debt consolidation: Debt consolidation can help you save money and simplify bill paying. Two popular debt consolidation methods are debt consolidation loans and balance transfers. With a debt consolidation loans, you’ll take out a new loan with a lower interest rate to pay off your existing loans.

With a balance transfer, you’ll take out a new credit card with a low or 0% promotional APR period. Just make sure you can pay off your balance before the promotional period expires (typically 12 to 18 months). Otherwise, you could be stuck paying off your debt with an extremely high interest rate, the exact opposite of what you were trying to achieve. Note that to qualify for a balance transfer card you’ll likely need an excellent credit score range.

4. Increase your income

Finding ways to increase your income can expedite your debt reduction plans. Finding a side hustle, such as driving for a rideshare company or selling lightly used items online, can help you get out of debt faster.

Related: How to Become Debt-Free on a Low Income

5. Try to negotiate a lower interest rate

High interest rates can keep you in a cycle of putting all your money toward monthly interest charges and not the actual principal amount. Speak with your credit card issuer and see if they’ll be willing to lower your interest rate. The better your payment history, the more likely it is that your creditor will agree to adjust your rate.

6. Consider a debt management plan

With a debt management plan, you’ll work with a nonprofit credit counseling agency that will work with your creditors to lower your interest rate and establish a fixed payment plan that will help you get out of debt in three to five years.

7. Keep your ‘why’ top of mind

Knowing your debt reduction “why” can help you stick with your debt payoff strategy. For example, are you trying to get out of debt so you can put a down payment on a house? Or finally go on that dream honeymoon? Create and keep your big goals top of mind—they’ll help you see your debt reduction plans through even if things get hard.

Other debt reduction strategies

Debt settlement

Debt settlement is when you work with a for-profit company that will try to negotiate a lump settlement amount with your creditors. However, this method is not without its risks. Debt settlement can negatively affect your credit score because you’ll stop sending direct payments to your creditors. There also is a chance that your creditors won’t agree to the proposal put forward by the debt settlement company.


Bankruptcy should only be used as a last resort because it can wreak havoc on your credit score. Chapter 7 bankruptcy involves a means assessment and the selling off of your personal assets. It remains on your credit report for 10 years. Chapter 13 bankruptcy establishes a creditor payment plan over a five-year period. It remains on your credit report for seven years.

Bottom line: How to reduce debt

The best ways to reduce debt are the ones that work best for your unique financial situation and lifestyle. The most important thing is to pick the strategy that you think you’ll be able to stick to. Remember: the best time to start debt reduction is today—you got this!