The seemingly impossible task of paying off mountains of debt is enough to make many people bury their heads in the sand and ignore the problem. Most people believe it can’t be done on their income 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 your 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 you should 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 note the total amount of income that comes into your household.

Debt Reduction Step Two

Gather up the most recent statement for all your oustanding debts, List the outstanding balance, interest rate, and minimum monthly payment for each debt. Then total your minimum monthly payments.

Don’t be tempted to add up the total of your outstanding balances yet. For now, 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. The difference between the two figures is the amount you have each pay period to spend on living expenses — things like groceries, gas, electicity and water, insurance and general daily living need to 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 listed the interest rates you’re being charged on each of 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 stay with me – 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. Instead your balance will be slowly chipped away every 7 days.

Your interest charges will become slightly lower every month because of this effect, which will save you money and help to reduce your 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.

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.

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