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Debt reduction - Tips and strategies to fight your debts

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If you're struggling to meet your monthly bill payments and need to reduce your debt amount so as to pay less than what you owe, debt reduction is what you should choose.


What is a debt reduction program?

A debt reduction program is offered by debt settlement companies that work with creditors and collection agencies in order to trim down your debt balance. Debt reduction is similar to a debt settlement program (or debt negotiation).


Prior to offering debt reduction services, the settlement company will arrange for a free debt counseling session with you. The purpose is to find out whether debt reduction is the right choice for you or if you need to choose some other debt relief option.

What are the steps in a debt reduction program?

A Debt reduction program includes the steps given below:

  • Analysis of your situation: The settlement company analyzes your financial situation and finds out how much you can pay towards your debt.
  • Stop payment to creditors: The company then asks you to stop paying your creditors/collection agencies.
  • Start saving monthly: The settlement company will create a trust account for you to save a certain amount monthly for your debt payment.
  • Company handles creditor calls: While your funds grow in the trust account, the company handles all communication with your creditors and collection agencies.

For a detailed explanation, you may refer to the 6 steps in a debt negotiation program.

Debt reduction strategies - Can I do it on my own?

There are 2 debt reduction strategies which you can try out for yourself. These are explained below.

  1. Snowball method: This is where you pay off debt starting right from the lowest outstanding balance to the highest. Here's how it works.
    • Create a list of your debt accounts from lowest to the highest balance.
    • Pay the minimum on all your debts.
    • Make extra payment towards the lowest debt balance.
    Once you pay off the smallest bill, start paying extra towards the next higher balance and repeat the same for all your bills.
  2. Debt Avalanche: This is a reduction plan in which you start paying off high interest debts first and then move on to the ones having low interest rate. Here's a step-by-step approach.
    • List your debts in order from the highest to lowest rate.
    • Pay the minimum towards each account.
    • Make extra payment towards the highest interest account.
    Once the highest interest debt is paid off, start paying extra towards the account with the next higher rate and repeat the same for other accounts as well.

Credit card debt reduction strategies - Are they different?

Both Snowball and Avalanche methods are helpful ways to get out of credit card debt. However, giving priority to high interest debts by way of the Avalanche method is surely a better option when it comes to credit card debt reduction.

What are the credit card debt reduction tips?

There are 5 credit card reduction tips to watch out for.

  1. Pay more than the minimum: The minimum payment includes mostly the interest you pay on your credit cards. As such it'll take a long time for you to clear the debt. Paying more than the minimum reduces your outstanding balance thereby helping in credit card debt reduction.
  2. Split minimum payment if you can't pay more: If you can't pay more than the minimum payment, split it into half and make 2 payments a month. Since interest is calculated on the average daily account balance for the entire month, therefore, making a payment every 2 weeks reduces the average balance. It also lowers the finance charges included in a single minimum monthly payment.
  3. Make extra payment on your bills: Whenever possible, try making extra payments towards your credit card. It will reduce your bills and help in credit card debt reduction.
  4. Credit card balance transfer may help: You can transfer the outstanding balance from a higher interest to low interest rate credit card (or a 0% introductory card). Just watch out for balance transfer fees while you do so.
  5. 4 keys to getting out of debt: While you're into credit card debt reduction, watch out for the 4 keys to getting out of debt.

Can I negotiate credit card debt reduction?

Yes, you can negotiate to reduce your credit card debt. Just follow the steps on how to settle your debts yourself. To find out how much you can settle the debt for and what you'll save, use the Debt Reduction Calculator.


Debt reduction services are all about helping you to settle debts for less than what you owe. However, you can reduce the overall payable amount by choosing a debt consolidation program. This can be done by negotiating with creditors for lower interest rates on your bills. When your rates are lowered, you pay much less in interest and hence your outstanding debt balance is reduced.


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