Day 2 – Debt Reduction Techniques

Paying off debt is not an easy thing to do but it NEEDS to be done if your goal is to be financially independent and to retire early. It seems like everyone is in need of a good debt tracker – the ultimate tool to corral what you owe. After all, the average United States household in 2016 had 134,643 in debt. Debt is one of the great financial white whales – almost everyone has some sort of debt, but repayment seems to be increasingly out of reach for many. Student loans are crippling young adults’ financial well being young, while mortgage rates climb and a wider variety of credit options become available. I know that if you’re reading this, you’re well aware that debt can be a vicious cycle of overuse and slow repayment that can leave you forced to open more credit to make ends meet.

From using credit cards to pay off bills, student loans, increasing housing costs, and poor budgeting choices, getting in debt is a common way of life for most of us in America. But with high-interest payments each month, it’s hard not to think about what you could be getting if you didn’t have those debt bills to pay.

But before we can get you set up with your debt tracker, you’ll need to decide how you want to tackle the beast or as I want you to visualize it.

Image result for debt bear trap


There are many different debt reduction techniques available. Here are the three that I want you to focus on. I recommend starting with the debt snowball method first because it will help you get into the mindset of paying off your debt. The next two pay off debt posts I will focus on the Debt Snowball and Debt Avalanche method in more detail.


Debt snowball: This works by setting aside a specific amount each month. Even if the required minimum decreases each month, you’ll put that money aside to work towards debt. This creates a snowball effect since more of the money you pay will go towards the principal amount as time goes on. If you have multiple accounts, you’ll start with whichever account has the smallest balance. This method is more about about behavior modification.


Debt Avalanche: This works well when you have multiple credit card or other loan balances. Unlike the snowball method, you won’t be targeting smaller accounts first. Make all of the minimum payments on each account, and then put the remaining money you have to pay off debt with towards the account with the highest interest. This will help you reduce the amount you pay on interest over time. This method will save you the most on your interest payments overtime.


Debt consolidation: This method you will hear a lot about but I do not recommend it. This consolidates all of your debt into one account so you are only paying off one interest rate each month. In theory, this approach can be helpful, but in practice, it can get dangerous. It makes it easy for you to rack up even more on your credit cards and get yourself even more in debt.

No matter what method you choose, a debt tracker can help you get a handle on your debt, because it provides an opportunity to put all of your financial information in one place.

If you miss even one account, credit card, or loan, you won’t get a complete picture of your debt situation. Instead of logging in to all of your accounts and trying to remember all of the numbers, having a place to write down all of the numbers will help you stay on top of your debt.


Once you have an idea of where your finances stand, you can figure out what needs to be tackled first. Got a credit card that’s costing you hundreds each month in interest? Have a small loan you could knock out in a month or two? Using a spreadsheet will help you compare account information and identify where you can start. This is what I do personally and is my favorite reason for recommending because it’s simple and visual.

Also if you feel mathematically challenged, spreadsheets are a great solution to making sure you don’t make any glaring errors when tackling your debt. One of the biggest benefits of using a spreadsheet is the number of functions you can perform. Instead of crunching the numbers by hand, you’ll be able to just put the numbers in each cell, select a function, and watch the magic happen. These functions are much less subject to error than the calculations you do by hand.

Steps Needed:

  • First I would recommend writing down everything before putting it all into an excel sheet. so you can feel and see yourself writing down exactly how much debt you have to pay off.
  • Second is to gather the three main things about the debt you owe. The total amount left to pay off or the balance. The interest rate that is on the debt payment and the minimum monthly payment.
  • Third once you have all of these written down pull out a calculator and add up all of the balances on how much you owe and all of the minimum monthly payments you are paying towards them.
  • Then once you have completed this you can enter all the numbers in an excel sheet.

Once you have done the four steps above you will have visually written down the goal and now its time to build a plan around accomplishing it.

In the next two posts I will go into more detail on explaining the Snowball Method & the Avalanche Method when it comes to paying down debt.


“Never spend your money before you have earned it.”
– Thomas Jefferson –

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