Strategies to Reduce Debt
Almost everyone struggles with debt at some point. In my early 20s, I learned some hard lessons about credit card debt. In my early 30s, I paid back graduate student loans that soaked up a huge share of my income. I came out okay both times, but I can relate to having a big debt load.
Recently, I've worked with several married couples who are approaching retirement and carrying significant debt. Amid the student loan crisis, I've seen parents carrying tens of thousands of dollars in loan debt for their kids.
Reducing debt is a critical piece of a sound financial plan, but it's hard to know where to start. People often look for a magic bullet like debt consolidation, but that doesn't make the problem go away. My approach is a practical framework of prioritization and consistency. Like most of financial planning, boring and reasonable go a long way.
Write it down
The first step is to know where your money is going. Put your debts in one place — a spreadsheet or a piece of paper. How much remains, what's the interest rate, when is the payoff scheduled? This helps you prioritize.
I generally recommend paying down the highest interest-rate debt first, but some planners favor the "snowball" approach: pay off the smallest debt first for an easy win. If you list your debts in one place, you may see that a small victory is closer than you think.
Writing it down also shows you when debts mature. Car loans typically run 5 to 7 years, so you may be closer to the end than you realize. If you're near the end of a car loan and struggling with debt, don't buy another one. Freedom from car loans is one of life’s great pleasures.
Mortgages also have a maturity date, so even if it's 10 years out, you know your payments will decline considerably once it's gone.
Prioritize credit card debt
Credit cards should almost always be the top priority. Average rates exceed 20 percent, meaning that a $10,000 balance can generate more than $2,000 a year in interest alone. Eliminating that is effectively a guaranteed 20 percent return, something no investment can reliably match.
If a client comes to me with credit card debt, it's priority number one — ahead of retirement savings, investing, or paying down a mortgage early. Pay more than the monthly minimum amount due, since minimums are designed to extend your repayment and maximize your interest costs. If you have many credit cards, focus on the highest-interest balances first (avalanche) or the smallest balances if motivation is a concern (snowball). Balance transfers can help, but only if your spending habits are under control.
Add income or cut costs
Find a way to put extra money to put toward debt. Income from a side gig can go entirely toward debt reduction, and windfalls like tax refunds or bonuses are powerful when applied intentionally to balances.
Or you can try to cut costs. Consider modest changes like dining out less or cutting subscriptions, or bigger ones like downsizing a home. Downsizing may feel drastic, but it can eliminate a mortgage, reduce maintenance costs, and meaningfully improve long-term sustainability. If possible, postpone major purchases until your debt is under control.
Debt consolidation
Consolidation gets pitched as a fresh start, and the ads make it sound like the answer to everything, but I'm generally skeptical. Rolling several debts into one loan or balance transfer doesn't erase what you owe. It only repackages it and can have the negative effect of tempting people to keep spending on the cards they just "cleared." If the underlying habits don't change, you end up back where you started with a new loan stacked on the old balances. For credit card debt, treat consolidation as a last resort.
That said, consolidation can be valuable for student loans. Federal consolidation simplifies multiple servicers into one payment and may open the door to income-driven repayment or forgiveness programs you wouldn't otherwise qualify for. Private refinancing can also make sense by lowering the interest rate. But moving federal loans into a private one means giving up federal protections, a trade-off worth weighing carefully.
When keeping debt makes sense
Reducing debt is generally advisable, but keeping certain debt can be reasonable, even beneficial. Low-interest mortgages are the best example: a rate under 4 percent isn't necessarily a priority to pay down early, even on a fixed retirement budget. It can be more valuable to keep assets invested and pay only the minimum, depending on your plan.
That's the distinction between good debt and bad debt. Good debt is planned, affordable, and integrated into a broader financial plan. Bad debt erodes cash flow and creates stress.
None of this requires a dramatic gesture. No single move erases a balance overnight. What works is writing it down, attacking the highest-cost debt, and staying consistent. That's what planning is all about—being practical, consistent, and intentional.
This article first appeared in The Berkshire Eagle