10 tips for how to reduce or eliminate debt

It can be easy to get into debt—and difficult to climb back out. And if you have high levels of debt, it can affect your credit history—which many companies look at when you apply to borrow money, get a credit card or rent an apartment.

But there’s some good news: It’s possible to get your debt under control. Here are 10 ways to chip away at your debt and get your finances under control.

Before you can make a plan to pay off your debt, you’ll need to figure out how much you earn and your total expenses. Here are the steps you can take to create a simple budget:

1. Determine your income. Check your pay stubs from the last two or three months and write down how much you earn each month after taxes. You should also include things like tips, bonuses, income from self-employment, investment income, support from family, government benefits and child support.
2. Add up what you spend. Go through your monthly expenses and write a list of your fixed costs, such as rent, utilities, groceries, transportation costs, credit card bills and student loan payments. Also consider irregular expenses like gifts or unexpected bills.
3. Figure out what’s left. Subtract your expenses from your monthly earnings and look for areas to cut expenses. With the money you have left in your budget, you can make a plan to pay down some of your debt each month.

Once you’ve created a budget, continue to track your expenses. This can help you understand where your money is going and keep you motivated as you pay off debt. Use the method that works for you, whether it’s writing down your expenses with pen and paper, typing them into a spreadsheet or using a mobile app.

Simple billing errors can drive up your monthly costs—and in some cases, you might not even notice. That’s why it’s important to carefully review your bills before paying them. This includes regular bills from your utility, credit card and insurance providers, along with one-time expenses like medical bills.

Look for potential errors like extra services you didn’t request, fees with no explanation, duplicate charges, fraudulent charges and miscalculations. You can also call the company that billed you and ask them to explain each line item.

While this strategy won’t help you with the debt you already have, not taking on additional debt can make it easier to get your finances under control. When you take on more debt, you could increase your payoff timeline and the money you pay toward interest.

Keeping your debt from growing can be a challenge if you can’t pay for necessities, though. If your income is less than your monthly bills, you might be able to start a side hustle or get a seasonal job to increase your earnings. You may also be eligible for financial support from state and federal government programs or be able to work with your lenders on other debt relief options.

Making on-time payments is always a good idea because it keeps your accounts in good standing and helps you avoid late fees and interest. And because payment history is a big part of your credit scores, avoiding late payments is a good way to keep your credit healthy. 

If you have a balance on your credit card, the issuer may ask you to pay a minimum payment and charge interest on the remaining balance. But because of how interest compounds, it could take longer to pay off your balance if you’re only paying the minimum. 

If you can afford to pay more than your credit card minimum each month, you’ll reduce the interest you pay over time. The Consumer Financial Protection Bureau (CFPB) recommends paying your entire balance each month—or as much of the balance as you can—to avoid or minimize interest charges. 

The debt snowball method is a strategy you can use to pay down debt. Here’s how it works: 

You make the minimum payments on all of your bills, then use your extra funds to pay off the debt with the smallest balance. Once that debt is gone, move to the next-smallest balance until all your debts are paid off. By focusing on one debt at a time instead of multiple debts, this strategy may help you build momentum and stay on track. 

The debt avalanche method helps you get rid of the most expensive debt first. You’ll make the minimum payments on all your bills, then use the extra money to chip away at the balance with the highest interest rate. After you’ve paid off the account with the highest APR, move to the debt with the next-highest interest rate. This method can lead to paying less interest overall, which can help you save money in the long run.

An emergency fund is a cash reserve you can use for financial emergencies, such as a job loss or medical bill. Having one of these may help you avoid getting into debt in the future. You can use your emergency fund for an unplanned expense instead of charging your credit card or taking on a new loan.

The amount you should save depends on your situation, but some financial experts recommend having enough money saved to cover three to six months’ worth of expenses. And the CFPB recommends starting with a goal of $500—to cover common emergencies like car repairs or medical costs—and then even trying for $1,000. If you don’t already have an emergency fund, consider saving whatever you can afford each month until you’ve built up your savings.  

If you have multiple debts, you may want to consider debt consolidation. This is a strategy where you take out a new personal loan or credit card and use it to combine your debts into one account. If you qualify for a lower interest rate, you may save money on interest. Plus, rolling all your debts into a single payment can help you simplify your monthly bills.

But it’s important to do your research and consider the pros and cons of debt consolidation. 

Credit counseling agencies are usually nonprofit organizations that help people manage their debt. If you decide to schedule an appointment with one of these agencies, a counselor will meet with you and go over your finances. The counselor may help you organize your budget, find room for paying off debt and potentially negotiate with creditors on your behalf.

These services may either be free or come with a small fee. If you’re interested, check the National Foundation for Credit Counseling for a list of services and counselors in your area. The CFPB also recommends checking with your state attorney general and state consumer protection agency about any credit counseling agencies you select. 

As you work to minimize or reduce your debt, monitoring your credit can help you stay on top of things—and see how debt may be affecting your credit. One way to monitor your credit is with CreditWise from Capital One.

With CreditWise, you can access your credit report from TransUnion® and get a weekly VantageScore® 3.0 credit score—without hurting your score. CreditWise is free for everyone, whether you’re a Capital One cardholder or not.