Personal Finance

How to reduce debt and save money

reduce debt

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You have debts and want to get rid of them? In this article, you’ll get specific instructions on how to reduce debt. Keep reading if you ask yourself the following questions:

  • How to get rid of my debts?
  • What debt reduction strategies are there?
  • How do I best start?
  • Where can I get help if I need it?

How to reduce debt: warning

Anyone who inputs Google to “get rid of debt” is flooded with promises, such as: “Debt-free in 3 years, without personal bankruptcy, without Schufa, without risk, reduce rates + immediately more money to live”.

That sounds great at first … but only at the first moment. I have to warn you against such offers! There are three reasons for this …

First, most of these offers are aimed at offering you a new loan. A so-called “debt restructuring”. Rescheduling is not a debt relief. With that, you’re just relocating your debts. This may make sense in some circumstances but is not a definitive solution. 

Second, most of these offers are highly dubious. They just drive you further into the debt swamp. These offers are not about you and your concern, but only about the brokering of further loans.

Third, there is a better solution. These I call “the real and honest way out of debt”. And this way is on this page.

The three ways to reduce debt

To get rid of debt there are basically three different ways:

  1. Repay debts
  2. debt comparison
  3. personal bankruptcy

There are no more options. What exactly these possibilities include, how these paths work and when which path is possible …

Repay debts

If you are in debt, you borrow money. At the same time, you promise the creditor to pay back the money. The normal way to get rid of your debts is to pay them back (as agreed).

The debtor borrows money from the creditor and pays it back later.
The debtor borrows money from the creditor and pays it back later.

With this solution, both sides are happy. The debtor because he loses his debts and the creditor because he has his money back. How to pay back the best, I’ll show you later in the article.

As long as this possibility exists, you should not think about the other two ways.

Debt comparison

The second option is a so-called debt settlement. You try to get the debt, or parts of it, from the creditor. That certainly sounds like a “simple” way, but in reality it is not. Because for the creditor, this variant is of course not a nice solution. He would have to give up some of his money. Therefore, he will not agree with a comparison so easily …

In a debt settlement, the creditor waives part of the debt total.
In a debt settlement, the creditor waives part of the debt total.

For him, a comparison makes sense only if the situation of the debtor is really hopeless and threatens total failure. Only then does a settlement become attractive to the creditor in order to get back at least parts of the debt.

There are two types of comparison:

1. The extrajudicial debt settlement:

This way you can choose to avoid a bankruptcy petition. The debtor contacts the creditor directly and tries to find a solution. It definitely pays to seek the advice of a debt counselor. This can help to formulate a meaningful offer to the creditors.

2. The court debt settlement:

If such an out-of-court settlement fails and bankruptcy is imminent, the court will also try to find a settlement with the creditors. Basically, one can say: a comparison is the last option to avoid a personal bankruptcy … And if there is nothing left to save in comparisons, then only the third possibility comes into question:

Personal bankruptcy

The very last step in getting rid of debt is personal bankruptcy. This is a judicial debt settlement, if a “natural person” is insolvent (so the official name).

The insolvency procedure is a process over several years. During this time, there are clear rules that the debtor must adhere to. After this time (maximum after six years), he is then released from his debts.

The path of personal bankruptcy is only an option if there is no other way out. A personal bankruptcy must be officially registered. If you think you have to take this path, then you definitely need help with debt counseling.

Reduce debt – how does it work?

Getting rid of your debts does not mean you’ll be up for the day or at the touch of a button. I think you are aware of that. Debt reduction is a process. You can imagine it a bit, like a journey. A journey from A (debt) to B (debt-free).

If you want to reach your destination on a journey, you need a timetable. In a debt-reduction journey, this means having a strategy. A strategy that you simply have to stick to until you reach your goal. As I said, it is a process. You will only be able to reduce your debt step by step. Read on and I’ll explain you the steps:

  • Where you start the best
  • What debt reduction strategies are there.
  • How to stay tuned to the end.

Reduce debt – where do I start?

If we stay with the comparison with the journey, then the first step is the location determination. You have to find out where you are. Only if you know your position, you can choose the right path.

Before you can start reducing your debt, you first have to get a clear idea of ​​two things:

1) your debt. 
2) Your financial resources.

The whole thing may sound a bit boring, but you’re already doing a huge part of the overall work.

How many debts do you have?

What you need to know first is the state of your debt. You need an overview about:

  • … how high your total debt is. 
  • … how many creditors you have 
  • … who your creditors are. 
  • … which contracts and payment obligations exist.

So make a list. Write down everything you have in debt (with creditor, sum, agreements). A simple listing on a piece of paper (or in an Excel spreadsheet) is enough. So you do not need to do any science …

Many important decisions will depend on this list later … And even in a debt counseling this listing would be the step. More important note at this point:

If you can not handle it on your own then get help anyway! For example, you can ask a trusted person (a good friend or family member) for help. Or turn to a professional debt counseling service.

The step is enormously important. At least as important is the next part:

What about your financial resources?

You need a clear overview of your financial situation. You must know:

  • How much money you have available.
  • What’s happening with your money right now.
  • How much money you have left to pay your debts.

Why is that so important? To be financially successful, you need to have control over your finances. If you have no control, your money will flow somewhere, but probably never where you would like it …

You can imagine it like this:

You own a water bucket. But no matter how much water you fill in the bucket, for some reason the bucket does not want to get full. What would you do? I would certainly see if the bucket has a leak. Somewhere it will lose the water again …

And that’s exactly what you have to do with your finances. This means that you need a clear statement of your income and expenses. You have to take a close look at your finances and determine your cash flows:

  • What exactly are your earnings?
  • What are your monthly fixed costs?
  • What do you have in running costs?

You have to take stock of your financial situation. 

I can only urge you to really conscientiously implement this step. The nice thing about such a lineup is that it is not only extremely important for your debt reduction, but also later on for your further asset accumulation the basis.

Firmly managing your finances is the foundation of financial success. If you discover that it is over your head, you can not pay your bill here or there, or you can not handle your running costs anymore, then get help. Before your debt crushes you get professional support!

Reduce debt: What strategies are there?

Your starting position you know now: You have a list of your debts and know how much money you have available to pay off your debts. How do you bring this information together now? Or in other words: How do you go about working on the list?

Anyone who wants to achieve an ambitious goal, be it in sports, business or private finance, needs a strategy. There are two strategies for debt reduction: The snowball strategy and the avalanche strategy. I would like to introduce you to both …

The snowball strategy

The snowball strategy is about picking off individual items as quickly as possible. This means you look at your creditor list, find the smallest amount and start paying off. Say, you start with the amount you paid the quickest. It does not matter what the interest rate is or who the creditor is.

The snowball strategy begins at the small debt post.

The focus is on freeing you step by step. As soon as you have put the first hook, you have more financial freedom. Then you take care of the next smallest amount and work it off. Then the next and the next … And so on, until you get rid of the debt mountain completely.

The big advantage of this strategy: You have small successes very quickly and your creditor list is getting shorter quickly.

The avalanche strategy

Even with the avalanche strategy, you first focus on a post from your debt list. However, you do not look at the amount of the sum here, but at the post, which costs you the most interest. So the one that is the most expensive for you.

Only when this is done, you take the next one (the second highest interest rate). And so on … Until the list is empty.

The avalanche strategy starts with “most expensive” debts.

The advantage of the avalanche strategy: From an economic point of view, you get the most from your debts. So purely mathematically, the avalanche strategy is the more meaningful.

Which strategy is better?

Both strategies are relatively simple, both are effective, and both have advantages and disadvantages. But, there is a crucial commonality between both strategies. Did you notice which ones?

They each focus only on a single debt item. And only when this is completely finished, then they go over to the next … This is the trick to reduce debt:

Do not fight on all fronts, but proceed successively. Take one step at a time! So you will, gradually, get rid of all debts. And only counts: that you are debt free in the end. Just choose the strategy that you like better and that suits you better.

Reduce debt: how do I stay focused?

It does not matter which strategy you choose, the most important thing is to push it through to the end. And deliberately hide all other ideas in this way. One way, and one consistent. Be aware that this can be a long process. For that you need one thing in particular: Endurance! Here are a few tips that will make it easier for you to stay on the ball:

The trick with the big goal

I’d like to introduce you to a little trick on how to increase your motivation to reduce debt. The more appealing your goal is, the more fun you will get to work for it.

The more your goal positively turns you into a certain “anticipation”, the more motivated you are. So what I specifically recommend to you is this: Start by putting aside small sums of money. Start building a small fortune by the way. So while you are working on debt reduction you save money and are also working on asset accumulation.

Work alongside your debt reduction on your asset accumulation.
Work alongside your debt reduction on your asset accumulation.

What will be the result? On the day you pay back your last debt dollar, you will be able to look directly at a nice little fortune. And that should be your new fixation! It does not matter that there are only a few dollars a month. Just the fact that you see your fortune growing will greatly increase your motivation!


Money is a form of energy.

Debt always arises from a feeling of lack, ie a lack of energy.

What helps you is an energy of abundance.

And that’s where you come from creating abundance on your account. As soon as you see a small fortune growing there, you are getting more and more into a sense of fullness.

Let yourself breathe

Anyone who has debts usually just wants to get rid of them. No matter how and as fast as possible. That is absolutely understandable … And basically, the idea of ​​”fast debt-free” is a good approach.

But, and that’s very important: not price! That would be the biggest mistake you can make. Overburdening yourself. Because your normal life life goes on in the time of debt reduction.

And you still need to “breathe”. So also money and a certain amount of freedom. Debt reduction is not a sprint. You need a longer breath. For that, your life must continue to be worth living.

Putting every penny into debt reduction would be wrong. Declare yourself at your pace. Otherwise you will block your positive energy sooner or later …

Always keep a cool head

Knowing that one has debts can be a heavy burden on life. It is doubly important to realize that finance issues can only be clarified on a logical level.

Emotions have no business in financial matters. Therefore, even if it sounds a bit hackneyed: If you want to reduce your debt, you need a clear mind.

It’s about numbers and “sober” solutions. To find these, you need a cool head. Even if the topic is stressful for you, it means keeping calm. There is always a solution.

debt counseling

debt counseling

At the latest, when you realize your debt mountain is growing over your head, then you need help. There is the possibility to seek professional help.

For example, a debt counseling service. When that makes sense, how to find a debt counselor, and everything you need to know, you’ll learn in this section.

Debt counseling – when does it make sense?

Making use of debt counseling makes sense as soon as you feel overwhelmed with the situation. It does not matter where you stand, whether you have lost track of your debts, can not settle debts, or you are already over-indebted.

The more acute your situation, the better it is to contact a debt counseling service as soon as possible. There are no prerequisites for this (for example, a certain level of debt).

Debt counseling – Procedure

The normal course of a debt counseling session looks like this:

  1. Appointment
  2. Preparation of the debtor
    Before your first interview, you should gather all your documents together. 
  3. Initial Consultation
    This will be about analyzing your current situation.
  4. Debt
    Settlement This phase is about finding solutions to your way out of debt. You may have discussions with your creditors or other meaningful actions.
  5. If necessary, assistance in applying for
    personal bankruptcy If no other alternative for you to be possible, your debt counselor will also accompany you in the last possible step, the bankruptcy proceedings.

Of course, the course of a debt counseling is an individual thing and depends on your situation.

Debt counseling – costs

Of course, costs arise at a debt counseling. Whoever receives Hartz 4 or social assistance, is low earner or living at subsistence level, can apply for a so-called advisory assistance certificate at the local district court. Then the costs will be settled by the competent court.

In a reputable debt counseling is clarified in advance, whether and how the cost of advice can best be paid. One solution would be, for example, an installment. There are also free variants, such as online advice. 

Reduce debt – common problems and more tips

Debt reduction may mean a longer journey. A few tips to help you on this journey.

Keep your money together

If you want to be financially successful, you have to keep your money together. Be aware that you are tempted everywhere to spend money. You have to control your consumption.

The less money you spend, the more money you will keep. And the more money you keep, the faster you can pay off your debts. So always be aware of what you really need.

Be open and honest with your creditors

Imagine you were standing on the other side. You would be the creditor and have lent money to someone. What would you wish?

I guess you would want honesty and openness. Should it come to a bottleneck, you want to be informed as a creditor early on. No one wants a sudden rude awakening.

So play as well as you can with open cards and dedicate your creditors to your situation. The sooner you point out difficulties, the easier it is to find solutions.

Take reminders seriously

If you get mail from a creditor, do not let it lie. The worst thing you can do is bounce off your creditors. Try to deal with them well and show clearly that you are willing to pay back your debts.

In an emergency, they will be much more likely to compromise if you have always behaved correctly and honestly. So be sure to respond to any letter regarding your debt. If you feel overwhelmed, seek help (for example, from a debt counselor .

Check debt restructuring for meaning

In certain cases, it may be useful to resort to a so-called debt restructuring. This replaces old debts and takes on new ones. The goal here may be to bundle debts or get cheaper interest rates.

This is a game with the numbers and should be best accompanied by a professional. If in doubt, talk to your bank or seek the help of a debt counselor.

But be aware: trying to reduce debt by making new debts does not work. If you do it wrong, it can also exacerbate the problem. Therefore, rescheduling is not a solution, but in certain cases can improve the situation a bit.

Recognize and avoid debt traps

Why do so many people have debts today? Because it’s very easy to owe debts. In principle, this includes everything, where you get something with a signature, which would normally cost money. The lure, of course, is great to be able to afford things that would not be possible without debt.

It’s getting easier and easier. Therefore, always keep your eyes open for such debt traps. Debts have many names:

  • loans
  • Disposable
  • Rate payment
  • 0% financing

Anyone who gets involved with these terms should be aware that he is in debt. Basically, even a mobile phone contract, in which the smartphone is “free” to just a purchase on the pump. You have to pay the device afterwards (over the fees). Such concepts are the reason why (especially many young people) build up debt. Whole industries only live on the fact that people consume on a pump.

Summary: The path to a debt-free life!

If you want to get rid of your debts sustainably, then you must stick to the following recommendations:

  1. You have to take your debts seriously
    Even if it’s painful at first, the worst thing you can do is close your eyes to your debt. That just makes the situation worse.
  2. You must not make any further debts
    Make no new debt. These remove you from your goal of being debt free and pull you deeper into the debt swamp. (more about this: recognizing debt traps )
  3. Your first step is to create clarity
    The very first step must be to raise awareness of your situation. Both about your debt, as well as about your current financial position. 
  4. You Need a Clear Debt Free Roadmap
    If you want to get rid of your debt, you need a clear plan to stick to. Without a plan it will be hard to get out of debt.
  5. In case of doubt you should get help
    If you are overwhelmed by your situation, do not hesitate to get help. There are many possibilities.