How to Reduce and Manage Debt: 9 Actionable Tips for Financial Health

Personal debt in America is worth nearly $17 trillion, shared by approximately 340 million people. Debt can take many forms—student loans, car loans, mortgages, credit card debt, personal debt, and even payment plans for overdue bills. If you’re managing debt, remember you aren’t alone—after all, the average amount of debt held by American households is more than $100,000.

The good news is you can take some actionable steps to reduce debt and help boost your financial health in the long run. Here are some tips for learning how to deal with debt more confidently. 

1. Understand your total debt

When was the last time you wrote out all your individual debts and tallied the totals? To manage debt successfully, you must first know how much you owe. There's no right or wrong way to do this as long as you create a comprehensive list. Some prefer to write this information down in a dedicated notebook or tablet, while others prefer digital formats. 

Regardless of where or how you choose to create your list, ensure you include the following:

• Creditors' names

• Total amount of each debt

• Minimum monthly payment amounts

• Interest rates (when applicable)

• Monthly due dates

At the bottom of your list, you can keep a running tally of your total debt amounts. Not only will this provide the most accurate picture of your total debt, but it can help build confidence. Usually, the total debt amount will decrease faster and more significantly than individual debts. Seeing the progress you're making in debt reduction can help you keep going and feel less overwhelmed. 

2. Prioritize debt pay-off efforts

Once you've created your initial debt list, you can prioritize debt pay-off efforts. Generally, you'll want to prioritize credit card debt because these tend to have higher interest rates. Choosing the credit card with the highest interest rate as the highest priority is a good idea.

However, sometimes you may decide other debts take priority. For example, you may have a personal loan with only $200 left. You could pay that off before tackling more considerable credit card debt. Although paying off the small personal loan first would cost a little extra in the long run, it can also help build momentum when you quickly cross the first debt off your list. 

Ideally, you can make at least the minimum monthly payments on all your debts. But, sometimes that isn't possible, and you must pick which creditors you'll send money to. Your debt priority list can help you make those challenging decisions by showing you which debts are most important. 

The priority list doesn't have to be referenced only when you're short on funds. If you have extra money after paying bills and debts, the list can outline where to place it. 

3. Create a list of monthly bills and payments

Having a budget can help you learn how to deal with debt and create better financial health moving forward. You can create your list of monthly bills and payments in a dedicated notebook, go digital, or use a bill payment app to help. Choose the way that makes you feel most comfortable.

When creating your list of monthly bills and payments:

• Start by listing all your regular household and personal bills.

• Remember to include amounts (or an estimate for bills that change from month to month) and due dates.

• Arrange bills so the first bill due during the month is first on your list or bill payment calendar.

• Remember to budget for expenses like gas, groceries, and personal care items.

Once you've listed your monthly bills, compare the totals to your income. Then, dedicate a percentage of that income to paying off debts and building savings. Choose the debt(s) you'll make the monthly minimums on each month and add them to your bill list. When you have extra money, you can either pay more on those priority debts or make payments on a lower-priority debt. 

4. Pay your bills on time 

Keeping your bills current should be a top priority. Late payments make managing debt more challenging because you're paying fees on top of normal bill amounts. Those fees can add up significantly over time. For example, let's say you're consistently one week late on your rent and pay a $35 monthly fee. Over a year, you could have spent up to $420 in rent late fees alone. 

Many credit cards and utility companies also charge late fees. These are charged on top of accumulating interest for credit cards and loans. 

Of course, life happens, and sometimes you just can't pay your bill by the due date. In this case, make your payment as soon as possible to limit potential late fees.

5. Avoid accruing new debts

When you're trying to reduce your debt, avoiding taking on new debt is important. After all, you want to reduce and manage debt you already have, so taking on new debt can sometimes only place the finish line farther away. The most important new obligations to avoid can be big ones like mortgages, car loans, and new credit cards. 

But what if you have no choice but to take on new debt because an emergency has occurred?

If you need financial help for an emergency before you have enough savings to cover it, consider asking a friend or family member to help instead of taking out a personal loan. Although this still adds to your total debt, it may not come with interest payments that keep growing the amount owed over time. 

6. Consider a debt consolidation loan

If you have several small debts, a debt consolidation loan may be beneficial for a few reasons. Most importantly, the loan may have lower interest rates than the debts it's replacing, which will save you money in the long run. But combining a handful of smaller debts into one larger consolidation loan can also make tracking your monthly payments more manageable. 

Many financial institutions offer debt consolidation loans, but not all are created equally. When looking for the right option for your unique needs, consider the following:

• Find a loan that offers the amount you need.

• Choose a reputable loan provider.

• Look for fixed-rate loans so you always know what your payment will be.

• Find the lowest interest rates and ensure those are lower than all (or most) of the debts you're looking to consolidate.

• Try to find a lender with little to no fees.

• Ask about repayment periods so you understand what your monthly minimum payments will be.

• Ensure you qualify for the debt consolidation loan you hope to receive.

Remember to pay your debts once you receive the loan. Failure to use the money as intended can have devastating consequences for your financial health. If you don't qualify for a debt consolidation loan, just move forward, paying your debts off as you can. You can try to reapply for one later, once you've paid down some of your debts if this is the route you want to take. 

7. Build an emergency fund

An emergency fund is one of the best things you can do for your financial health since it reduces the risk of borrowing money later if something unexpected happens. Remember that any amount of money placed into savings can be beneficial. Many people fail to put money into savings because they feel like they don't have enough money to stash away. But even the smallest amounts of money add up over time.

For example, let's say you can only afford to put $5 into your savings account each week. While $5 may not seem like much, you would have an emergency fund of $260 at the end of the year, and that's not accounting for any interest you earned on those funds.

Or, let's say you're married and can afford to put $20 a week into savings between the two of you. Today, $20 may not seem like much because of the rising living costs. But, at the end of the year, you'll have $1,040 in your joint savings account. 

Choose a small amount that's doable for you after paying your bills and reducing your debts. No amount's too small. Plus, you can always add a few extra dollars when you have additional funds, which can help give your emergency fund quick boosts. 

But what should your big savings goal be? 

Eventually, you'll want to have between 3 and 6 months of living expenses in your savings account. This will protect you financially if you lose your income for any reason and is also generally enough to cover some big emergency expenses. For example, 3 to 6 months of living expenses should be enough to replace your water heater or buy new tires for your car. 

Need some help reaching your savings goals faster? A high-yield Varo Savings Account can be a great option for building an emergency fund, and it comes with no fees and easy auto-saving tools to help grow your money.

8. Limit unnecessary spending

There's nothing wrong with enjoying yourself or spending money occasionally on a want rather than a need. But, when you're actively working to manage debt, you'll want to try to keep unnecessary spending to a minimum. If possible, avoid spending money on anything that isn't essential. 

That being said, life needs joy. Limiting unnecessary spending can be much less restricting if you choose something you enjoy and set a budget or schedule for it. The key here is to stick with the rules you laid out for it. 

For example, let's say you enjoy going out to eat. Instead of eliminating dining out entirely, you could create a rule that you only go out once a month and spend less than $100 when you do so. This allows you to indulge in something you enjoy but ensures it doesn't affect your debt management and reduction efforts. 

9. Consider a temporary suspension of avoidable payments

Another way to create more room in your budget for debt repayment is to temporarily suspend recurring payments that aren't 100% necessary. Examples include monthly subscription boxes, magazines, food subscription services, and gym memberships. You might also choose just one streaming service and cancel your subscriptions to additional ones you have. 

Suspending avoidable payments doesn't have to be forever (and you don't even have to do it if you don't want to). You could set a period for your suspension, such as 3 or 6 months. Once that period ends, you can resubscribe to the things you miss and want back.

This brief sacrifice can help generate extra money for debt repayment, which can set you up better financially. Plus, it also allows you to determine whether recurring subscriptions or memberships are something you want to continue with. 

Stay out of debt moving forward by making sound financial decisions

Reducing and managing debt doesn't happen overnight. However, if you continue implementing the actionable tips above, your total debt will slowly but steadily become smaller. You can speed up the process by generating additional income that you use only for paying off debts, but even without that, you can make great progress.