Top 5 Tips on Debt Reduction

Top 5 Tips on Debt Reduction

by Lourens J. van Rensburg on 24 Feb, 2012

40% of UK adults admitted they are worried about their levels of personal debt, according to a recent survey. In the survey, they described themselves as ranging from “fairly worried” to “very worried” to “extremely worried”.

Credit card debt is the top cause for concern, followed by bank overdrafts, and lastly mortgages being the least cause for concern. The order is significant, because both credit cards and bank overdrafts are not backed by assets. These are classic symptoms of chronic overspending.

Here are the five top issues people are faced with when considering their way out:

  1. Invest to grow, or pay off some debt?
    If a person can’t manage their debts, what are the chances of them being able to manage investments to outperform their credit card interest rates? As businessman Roger Hamilton put it: “Trying to skip a level in the financial game of life often has disastrous consequences.”A person doesn’t have to be totally debt-free before they start investing, but they must be in control of their debt, and meet the minimum repayments without sinking deeper into the red.
  2. Consolidate, or not?
    Some people apply for consolidation loans, while others do it in DIY-fashion by refinancing their homes, and using that money to pay off all other debts.Trading multiple high-interest debts for one low-interest debt looks good in theory.However, it doesn’t always work in practice:

    • Trading short term debt for long term debt is a step backwards if one wants to get out of debt as quickly as possible.
    • It gives a false sense of security that one’s debts have been cleared, when in fact one still has the same amount of total liabilities.
    • One large consolidation loan goes out of sight, out of mind. But the credit cards and department store accounts don’t, because they are so easily accessible. It’s just a matter of time before a person resumes their credit card spending, going even deeper in the red.
  3. Target one debt, or diversify across all debts?
    Paying a little extra on each debt account gives barely noticeable results. It seems to “dilute” one’s hard-earned money.A focused, laser-targeted approach gives much better results. One should make the minimum repayments on all debts, then pick one debt into which to pay some extra amount, until it’s paid off. Then target the next debt, and the next, until a one is debt-free.
  4. Which debt to target first?
    It’s not optimal to target the debtwith the highest interest first, as most people instinctively do.The Non-Budget System ( provides a free online tool which calculates the best order in which to target one’s debts. It is not only based on interestrate mathematics, but it also takes the human factor into account to ensure the quickest path to debt-freedom.
  5. How to stay motivated?
    Getting out of debt requires patience and discipline, which can only come from strong inner motivation.Instead of focusing on the debt, a person should focus on the freedom that lies beyond it. When one’s debt repayments are 30% of one’s income, being debt-free would be like receiving a 30% pay-raise!

About the Author

Lourens J. van Rensburg

Lourens J. van Rensburg is the author of “The Non-Budget : The Proven 3-Step Method to Take Control of Your Personal Finances” ( He is a certified life coach with a special coaching interest in personal finance and entrepreneurship.