3 Simple and Effective Ways To Reduce Your Debt

When you’re in debt, it feels like you’ll never clear the outstanding balance and get back to normal.  While you’re never going to make a really big dent in your debt without making large payments towards it, there are some smaller baby steps that you can take to start reducing your debt without completely depleting your bank account in the process.  Here are three tips for tackling your debt and getting used to making regular debt-busting contributions to the outstanding balance.

  1. Round down your account balance.   This can be an easy way to build up a separate amount to throw at your debts.  The basic idea is to keep your everyday bank account at a round figure, such as $240, and transfer anything above that to a separate savings account. For example, if your account balance is $246.47, you can either transfer $1.47 to round the balance down to $245, or transfer $6.47 to round it down to $240.  It may seem like it takes a while to build up savings using this method, but you’d be surprised how quickly it adds up.  I’ve been using this method for just over a year now and managed to scrape together an extra $300 last year simply by rounding down the balance in my everyday account and sending it over to a separate savings account.  In the very early part of 2010 alone, I’ve socked away $30.  I always keep a set amount in my everyday account to cover my regular outgoing expenses and have a bit extra in case it’s a bad month.  I don’t ever overdraw my account,  and I can honestly say that I don’t miss the money.  Whenever you’ve put together a good amount, such as $50 to $100, use it to make a payment on a credit card or loan and then start again.  It will put you in the habit of consistently chipping away at your debts.
  2. Save loose change.  Stashing away your loose change is another way of building up money without feeling the effects too much.  I often find myself spending loose change on junk that I don’t need and wouldn’t normally purchase with my debit card, so this is a double savings for me.  You don’t have to save all of your spare change, but even small coins can add up over the course of the year.  I try to put all of my loose change in a tin and bag it up at the end of the year to cash in at the bank.  Then, I apply all of the money saved from the loose change to debt that I owe.
  3. Make regular payments. In addition to the above tips and tricks, you can also make daily, weekly or monthly payments towards credit card debts.  You may choose to pay a small amount on a daily basis, such as $2 per day, or pay the equivalent of that on a weekly or monthly basis.  This will slowly decrease your outstanding balance, but more importantly, it gets you into the habit of making regular payments towards your debt.

What works for you?  Are you disciplined enough to pay down your debt without saving little by little?  We’d like to hear your feedback on the issue of paying off debt.

  • http://personalfinancejourney.com Lakita (PFJourney)

    The first 2 tips can be accomplished with Bank of America’s Keep the Change program. They’ll round up your debit card purchases and sweep the change to your savings account. I think for the first 3 months they match your savings and after that they match 5% up to a max of $250.

    If you’re already a BoA member, its something worth looking into.
    If not, doing it yourself with the steps you listed accomplishes the same effect and goal.

  • Noah

    One thing I do is have an automatic transfer sent from my checking to my ING savings. It forces me to make that part of my budget and easier to save for me. Also since my checking is with a different bank, then the savings money is not too easy to get to.

    • Noah

      I just realized this specific post is about debt. For my car loan, I just payed extra every month and then when I got a new job with better pay. I upped my monthly car payment.

  • Karmella

    You might want to double check your accounts/cards to see if there are any limits on number of transfers – I think I have some accounts that have limits like that.

    I love the idea of paying more often (weekly) – the sooner you pay it the less interest you pay, and the less temptation to spend the money on something else.

    Along the lines of the saving loose change – I do the same with saving the coins, and I add in paper money that I “find” in my pockets. I toss it in with the coins and call it my “emergency cash” – not as an emergency fund, more as a slush-type fund I suppose. But I think you could do the same and then use it to pay down debt or add to savings, although one’s budget probably shouldn’t have that much wiggle room. But the odd $5 or $6 here or there really does add up.

    • Sally Aquire

      Good point about the possible limit on transfers. I hadn’t considered that drawback.

  • http://www.yourfinances101.com/blog David/Yourfinances101

    A word at the end of the post says it all—discipline.

    If you don’t have any, then you might need some of the ideas in this post.

    However, I was able to derive a lot of financial discipline by self-motivation.

    The desire to no longer have bills hanging over my head or an extra amount of unneeded stress because of CC balances, allowed me to develop the discipline I needed to get out of debt and stay out of debt.

    • J Walton

      Your comment about having the desire to no longer have bills hanging over my head, etc. – is the very reason I have created an aggressive debt-repayment plan (with no additional debt created) that will have me feeling great very soon.

      When you are tired of the debt, you will make changes.