How to Reduce Debt: Useful Suggestions to Cut Down Living on Credit

These days, reducing debt has become a priority for many families, especially those living on a low income. There are many budgeting methods to achieve that. But it all boils down to one thing: discipline. Discipline is the one thing that ensures success in debt management. Here are some suggested ways to reduce debt.

The Starvation Budgeting

Cheryl Kimball and Faye Kathryn Doria, authors of Everything Get Out of Debt Book, say that the starvation approach allows those who use it to free up more money that they can use to reduce debt faster. "During the debt starvation diet, limit yourself to the basics - food, shelter, clothing, healthcare, transportation, and communication," they advise.

Even some of these basics can be trimmed further. Some examples include cooking at home, getting a roommate to share rent, shutting down certain parts of the house during winter to save money on heating, buying clothes that can mix and match to enhance the wardrobe, getting rid of the second car, and canceling a cable service if no one is really using. While each one may seem small, they can all help cut down expenses.

The No Cash Approach

No money means no spending - so limit the cash in your wallet. (Of course, this only works if there are no credit cards in your wallet as well). Most employers deposit paychecks into their employees' bank accounts these days. So on pay day, don't withdraw all the money. Just take out what is needed for that week or month, depending on how often the paycheck comes in. Leave the balance in the bank account and let it grow for future uses.

The Envelope System

Unlike the no cash approach, the envelope system makes cash available at all times. As such, this only works for people with a lot of discipline and self-control. On pay day, take out all the money that isn't going into the savings account. Then put the cash into clearly labeled envelopes: "Mortgage," "Car Payment," "Insurance," "Groceries," "Utilities," "Water," "Cable, Phone, and Internet," "Gas," "Emergency," etc.

Some of these expenses are fixed so you will know exactly what amount to put in. Others are estimates and may fluctuate depending on seasons and time of the year. So keep this in mind when putting the cash into those envelopes.

The Multiple Bank Accounts Strategy

Another good idea is to have several bank accounts for different purposes. "This compartmentalizes your money the same way as the envelope system except you don't have cash hanging around," explain Kimball and Doria. To make this approach work more effectively, sign up for direct withdrawals for routine bill payments. Direct debits also help prevent late payments of bills, which in turn prevents users from being slapped with late payment charges. However, be sure to have enough money in each account to facilitate direct withdrawals.

Using Credit Cards Wisely

Credit cards are useful only if they are used carefully. That means avoid using them altogether except during emergencies. Leaving credit cards at home is certainly recommended for those lacking the discipline to do so.

Being mired in debt is hard. But no one has to live in debt all the time if debt reducing strategies are carried out seriously.