How to Reduce Debt Without Going Broke

Debt can grab hold of you and gnaw at you until paid off. Combining interest rates with minimum payments may leave you feeling like you are sending payments but not reducing your debt at all. Paying off debt will happen much faster if you are able to pay more than the minimum payment. Finding a middle ground between reducing your debt but not feeling broke is a challenge.

• 1

  Contact each credit card company to reduce your interest rate. If your credit is bad, you may not have much success here, but if you have good credit, you have a good chance of getting your interest rate lowered. Tell the agent that you have a credit card with a lower interest and are considering transferring your balance to that card but want to give the company a chance to match or beat the interest rate. Lowering your interest rate will lower your monthly payment.

• 2

  Create a monthly budget by listing all the categories for your debt. Living expenses should be included as well as any area your money goes. Start with only necessary expenses: mortgage, utilities, car payments, insurance, bills, food, gas, daycare, medication and other expenses you must pay. Add in the extras that you enjoy: movies, eating out, cable, bowling and other fun activities.

• 3

  Total the amount for the necessary expenses and subtract from your monthly income. The remaining amount is the money you have to put toward debt and for pleasurable things you enjoy so you don't feel as if you are broke.

• 4

  Add up the amount of money you spend on the extras. Find a middle ground where you reduce the amount of money going to pleasurable activities yet still feel as if you have money to do things you enjoy rather than feeling broke.

• 5

  List each of your bills in order of lowest balance to highest balance. Do not pay attention to the interest rate in this step. List the minimum payment required on each bill.

• 6

  Pay the minimum payment to all accounts except the one with the lowest balance. Pay the remaining funds available toward this debt to the account with the lowest balance. For example, let's say you generally pay $150 each month on five credit cards and you free up $200 for a total of $350. Pay $30 to each of the four credit cards with the higher balances. Put the remaining $230 toward the bill with the lowest balance. Repeat this until the account is paid off.

• 7

  Take the amount of money you were paying to the paid off account and put it to the new account with the lowest balance. Now you are paying $260 towards the second credit card and will pay it off quicker. Continue to pay the other three accounts the minimum $30 a month payment. When this is paid off, put $290 towards the third credit card.

• 8

  Proceed through the list until your debt is paid off. Do not reduce the amount you are paying out monthly until your last debt is paid off. Continuing the process will build more momentum with each debt that is successfully paid off. If you begin to feel broke and discouraged, remember you are paying off your debt. If this doesn't help, adjust your budget to keep a bit more out for pleasurable activities.