How-To Guide: Reduce Your Debt

Millions of Americans out there have paid off significant credit card debt. Now it's your turn. In short, your get-out-of-debt goal is to assess, organize, attack, and then lather, rinse, repeat until those balances are down to $0.

Don't worry; we're with you every step of the way.

Here's your six-step action plan for getting your debt under control. To help you, we've borrowed several worksheets from the Fool's old personal finance service, TMF Green Light. As you'll see, most of the steps have corresponding worksheets to guide you through the finish line. Take it at your own pace, and check off each step with a thick-line Sharpie when you're done. (Trust us, it's satisfying.)

1. Stop using your cards.
The last thing you want to do with credit card debt is add to it. Take all your credit cards out of your wallet or purse and leave them at home - safely out-of-reach behind a major appliance, or trapped in an ice block in your freezer. (You may want to keep one for emergencies. And no, a really great sandal sale or a cool new Bluetooth-enabled gadget does not qualify as an emergency.)

2. Assess your debt-to-income ratio.
It's time to face those debt demons and get a bird's-eye view of where you stand. Some debts, like mortgages and student loans, are just part of life. But the other ones (credit cards, car loans -- a.k.a. "bad debt") can bring down your financial house of cards with an innocent sneeze. Use the PDF-format "Debt-to-Income Ratio" worksheet to add up the latter and see where you stand.

3. Dig into the details.
Don't just throw yourself at a mountain of debt without preparation. Knowing the dirty details about your enemy is half the battle in conquering credit card bills. How many cards do you have? What interest rates do they charge? Which have the highest balances? Are the payments flexible? Is the debt "secured" or "unsecured"? Once you download and complete the PDF-format "Get to Know Your Debt" worksheet, you'll know exactly what you're facing.

4. Reduce your interest rates.
One phone call can save you thousands of dollars. Sounds like marketing hype, but it's true. Getting your lender to lower your interest rate will fast-track your debt freedom plan. The PDF-format "Dialing for Dollars" worksheet will help you make the calls.

5. Plan your attack.
It's time to form your battle plan. Pick a date. That's when you'll celebrate "Freedom From Debt Day." The PDF-format "Plan Your Attack" worksheet will crystallize your calendar.

6. Schedule a few (inexpensive) rewards.
Debt boot camp can get dull. Without a few treats along the way, you risk slipping back into old spending habits. Use the PDF-format "Plan Your Rewards" worksheet to celebrate your hard-won progress.

Read/Post Comments (26) | Recommend This Article (272)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 14, 2008, at 6:31 PM, ktc311 wrote:

    These are all great points and rules those wishing to reduce their debt should follow. It was the "get to know your debt" worksheet provided some time ago that got me to wake up and see how much I was paying when I added up the payments + interest charges.

  • Report this Comment On January 09, 2009, at 2:03 PM, browneyedgirl7 wrote:

    These are great tips, but does the Fool have any debt settlement strategies? I have about 36,000 in CC debt and I can't keep up with my payments. I have exhauseted all of my resources. How do I now I can trust a debt settlement company? How does the process work? How can I settle if I don't have the balance needed (if I did, I wouldn't be in debt!)

    Thanks for any help!

  • Report this Comment On January 11, 2009, at 1:06 PM, pejohb wrote:

    I have a couple of questions that are never addressed in this type of discussion, and are especially relevant in this economic environment.

    First, wrt safety net savings, should it be larger now than before? Previously, I thought of my CC credit limit as part of my emergency plan. Now that seems foolish, since some CC companies are chasing balances downward as the account is paid down (lowering limits as balances drop). This defeats the "limit-as-buffer" approach. Since CC companies are scum, should one hold back more cash rather than paying down balances more aggressively?

    Second, given uncertainties in the employment landscape, does it make sense to pay down a secured auto loan (say at 8%) before paying off a 22% CC balance? Failure to pay CC debt smacks you around in many ways, but failure to pay a car loan lures tow trucks. Is it better to pay off the car, or to trust Citi not to chase your balance to the basement?

    What would you do?

  • Report this Comment On December 03, 2009, at 7:41 PM, AsSoftAsSilk wrote:

    Everywhere I look I see advice on how to rid yourself of credit card dept, however that's not the only dept out there nor is it the dept I have. Can you devote an artical on how the working class can get rid of thier dept. Previous and current utility, phone and cable companies. Hospital Bills, Student loans, Mail order (magazines, CD's/DVD's, ect..). They don't seem like much seperatly but combined together I have around $10,000's in dept. I really want to take care of it but just feel overwellmed with the current let alone the past.

  • Report this Comment On December 03, 2009, at 8:32 PM, mamma01 wrote:

    Brown eyed gal....Debt settlement companies do in

    fact work. You need to look for certain criteria however. Such as the payment schedule. Always

    ask to see the schedule prior to commitment. You

    want to make sure that a portion of the monthly payment is always going toward the savings balance.

    You never want to sign with a company that charges

    any fees upfront or does not have some portion of the

    payments going to the principle. Normal fees for debt

    settlement are 15-18% depending on if your state requires attorney models. If the fee is too low, or too

    high.....check them out throughly prior to signing. A good source to check with is "The Association of Settlement Companies". They are the watchdog of

    the debt settlement companies and know who is in

    good standing and who is not.

  • Report this Comment On December 03, 2009, at 8:56 PM, gonzi2b wrote:

    I also have a lot of debt about 13,000 in cc alone my new year resolution is to try to pay this debt off so I can buy myself a new vehicle!! I have been making weekly paymets and has helped a great deal I keep getting bills and they are a lot lower than I realized!! so paying weekly has helped me a bunch!!

  • Report this Comment On December 05, 2009, at 11:08 AM, heyshaker wrote:

    This is a good plan. I will be going on it. However, number 4 does not always work. I have call Capital One twice and they Will NOT reduced rates. They told me it is NOT their policy to reduce rates.

    They also said they have not reduces rates for anybody. WATCH OUT FOR CAPITAL ONE THEY ARE REALLY BAD.....

  • Report this Comment On January 01, 2010, at 8:18 PM, cookiehunter wrote:

    I have over 60K in debt on cc, due to job losses, disability and major heart surgery our once 100K+ a year has gone to less than 30K. By withdrawing from my husband's 401K (almost gone he's 62) we have been paying min cc pmts. I used cc to pay for food, medical bills, to keep the lights, gas & water on. We're 3 mo's behind on our mortgage & for the 1st time unable to make min pmts on 2 lg cc bal's. The writing is on the wall, I'm upset but it looks like the only answer is bankruptcy. Any other thoughts?

  • Report this Comment On January 20, 2010, at 3:09 PM, Fool wrote:

    What if I am already a year behind on credit payments. I do want to resolve my debt. What do I do? How do I get started?

  • Report this Comment On January 20, 2010, at 3:17 PM, samoy2e wrote:

    ok i will give a suggestion to the question above. I have been through it and i owed everyone and i didn't know what to do so i stopped paying until i could get my finances in order. I have been paying everyone and couple of bills are halfway paid now. wellsfargo was 7800 and now it is 4535.00 been paying them 50 every other week(100 a month) My credit is getting better also. it was a 533 and now it is up to 706. It takes planning a lot of effort. From, pam A lot of cards are closed except my gas card.. I am paying out 598 a month. If i get the loan i will be saving at least 400 a month.

  • Report this Comment On January 20, 2010, at 3:37 PM, damiko56 wrote:


    If I were to make a payment on my credit card every week instead of once a month, would that help with reducing my credit card debt? Would paying it that way pay it down quicker?

  • Report this Comment On January 20, 2010, at 6:06 PM, Fool wrote:

    Okay so wha

  • Report this Comment On January 20, 2010, at 6:14 PM, Fool wrote:

    Okay so should I try to contact the creditors by the phone number on the credit card? And even though my accounts are closed will it show that I am paying and help my credit score? I tried contact by the phone number awhile ago and the credit card company didn't know who had my debt owed. Then what should I do?

  • Report this Comment On January 20, 2010, at 7:43 PM, newstart2010 wrote:

    I do agree somewhat with the cook. Not to make the family be without to fix my credit. But at the same time it is a factor because I am trying to move and due to my credit it's hard. And I have an eviction (and it wasn't due to non-payment of rent). but some probably would if my credit was better. Even though I can pay the rent people are not to willing. And I've been through it and seems like it's on-going, but I am not going to stress or get depressed over it. I just want to get things in order.

  • Report this Comment On January 21, 2010, at 1:47 PM, shughes10 wrote:

    I have a comment about Rate Negotiation. On the worksheet it states, "It can't hurt to at least ask for an interest rate reduction." Well, YES IT CAN HURT! I had a credit card with MBNA for 15 years, had execellent history with them. I got laid off and could see that I was going to have trouble with paying all my debt. I contact them to see if I could get a better interest rate. I only had about a 3K balance with them. When they saw I was unemployed, even though I never missed a payment, never late, and always paid more than the minimum, they closed my card and raised my interest from 12.9% to 26%. They would not negotiate with me at all.

  • Report this Comment On January 21, 2010, at 2:16 PM, medicatedpete wrote: for all of your answers.

    For this being an article about how to get out of debt, I find it interesting that it is advised to keep the credit cards (in case of emergency). This is the reason why people are in debt! We are forced fed the idea that you can't survive without a credit card or heavens forbid that you can't get through an emergency without accumulating debt. Tear up your credit cards, create a $1000 emergency fund (that will cover almost any emergency that comes up) a budget and start paying the debt off. If you use the card for "emergencies" you are back to square one and will fall back into the credit card trap.

    I did it, it works, you just have to buckle down and keep at it.


  • Report this Comment On January 21, 2010, at 2:26 PM, MsLuvlime2 wrote:

    I would like to begin investing in money markets on the short term with a substantial amount for me, (10K) for 90 days. Which is better a short term or opt for a longer term plan? How do mutual funds work, and are there time frames to it? Which is better money markets or mutual funds? I get such conflicting information depending to who I to talk to. Any directional information would be greatly appreciated.

  • Report this Comment On February 06, 2010, at 1:52 PM, SByer wrote:

    You should hold onto at least one card in the event you have to rent a car. You can't rent a car at many companies with a debit card.

  • Report this Comment On February 08, 2010, at 5:07 PM, arisefamily wrote:

    times have changed and calling doesn't always work - it does backfire! as shughes10 wrote - also, can you provide specific steps to removing errors on credit reports? I've identified errors for both my husband and I and we can't seem to get them off - also any specific suggestions on how to remove old history such as a medical bill that has now been paid off? this was due to an accident/lawsuit that took a yr to get the insurance to pay. Thanks!

  • Report this Comment On July 03, 2010, at 4:06 PM, givemepeace wrote:

    Cookiehunter, I'm in almost exact same position, husband lost job, major vet bills, son to college, heart trouble for husband, breast cancer for me, etc. Used up retirement (paid horrible fine to get it) and used cc's to pay mortgage (they used to give me blank cks), food, utilities, etc. Maxed them out, over 60,000. Now have good jobs, but can't make payments on cc's. Monthy payments higher than income & have tried refinance. No one will touch us, debt to income ratio way too high. What did you do? Any decent debt consolidations out there? Help!!!

  • Report this Comment On October 16, 2010, at 11:50 AM, Chase321 wrote:

    The six basic steps you outlined in this post are dead on target. I wish I had discovered it when I first got into $68,000 worth of credit card debt and got sued in court 3 times. Getting out of credit card debt is hard. And starting a step by step plan of action is vital to getting your debt under control. Thanks for the great tips.

  • Report this Comment On March 04, 2012, at 6:29 PM, nicole8383 wrote:

    I agree mostly with the first step in this tutorial. When trying to find the best possible way to repay credit card debt, it's important to remove the temptation. Closing the credit cards though is NEVER a good thing. I'd recommend shredding the cards, but keeping the accounts open to ensure your credit score goes up when you pay down the debt. Try and avoid ordering replacements. Try to double up on the minimums to get the debt paid down.

    Nicole @

  • Report this Comment On December 29, 2012, at 7:33 AM, jsmith2575 wrote:

    I tried to pursue debt settlement services and found myself facing not relief but even steeper financial losses. I got more into debt once I consulted the debt settlement agency and paid them in advance. I was so so frustrated! I thought I'll never get out of that loop! But on day I found a website by chance ( where they give great step-by-step guidance how to get debt free. It was pretty easy to use! I'm not sure if they charge anything now for their services but when I was using it, it was for free. They also have many helpful articles that would teach you how to manage your budget and debts without consulting a lawyer. Hope it will be helpful for somebody like it was for me.

  • Report this Comment On February 04, 2013, at 2:56 PM, autigerfan74 wrote:

    Any settlement company that charges you upfront fees should be avoided. I used many of the services and tools that I have been able to find online, then I used a local group out of Jacksonville, FL, Complete Debt Solution, to negotiate the payoffs for my debts. They saved me some money, and were quite upfront with the services they offered. None of that "WE CAN FIX YOUR CREDIT" or "WE HAVE THE MAGIC POTION TO SOLVE ALL YOUR PROGLEMS" stuff. Feel free to check them out at

  • Report this Comment On November 04, 2013, at 3:40 PM, HarryKyin wrote:

    These are indeed very helpful tips but what I think personally is the best way to reduce my debt is to balance my expenses. Always just asking the lender they are not going to decrease the interest rates. Yes I fully agree that knowing one's pocket one should do the spends. That will keep the credit & debit score in balance.

  • Report this Comment On November 12, 2013, at 11:06 AM, alawrence37 wrote:

    When would you recommend filing for bankruptcy? I mean, in Toronto, how much debt is enough to justify filing for bankruptcy?

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