11 Strategies to Reduce Debt and Improve your Credit Score

To help you take control of your finances and improve your credit score, we’ve gathered advice from 11 professionals across various industries. From embracing the snowball method to celebrating debt reduction milestones, these experts share their top strategies for reducing debt and boosting your credit standing.   

  • Embrace the Snowball Method
  • Develop a Debt Repayment Plan
  • Make Incremental Financial Changes
  • Dispute Credit Report Errors
  • Diversify Your Credit Accounts
  • Use the Debt Avalanche Method
  • Avoid Excessive Hard Inquiries
  • Cut Expenses to Pay Off Debt
  • Seek Professional Credit Counseling
  • Request a Higher Credit Limit
  • Celebrate Debt Reduction Milestones

Embrace the Snowball Method

Debt can feel like a mountain, but there’s a strategy I’ve found effective called the snowball method. Here’s how it works:

Start by listing all your debts from smallest to largest. Forget about the interest rates for now, just focus on the amounts. Then, aggressively pay off the smallest debt while making minimum payments on the rest.

Years ago, I was juggling a couple of credit card debts alongside a student loan. I knocked off the smallest credit card debt first. Seeing that zero balance gave me such a boost, like a minor victory. This momentum propelled me to tackle the next one. I was making consistent payments, which positively affected my credit score. So, it’s a two-pronged approach: reducing debt while improving credit. It’s about gaining momentum and keeping it rolling, just like a snowball!  –Evander Nelson, NASM-Certified Personal Trainer, evandernelson

Develop a Debt Repayment Plan

Creating a debt repayment plan is one strategy for reducing debt and improving your credit score. So here you go. Make a list of all your debts, including outstanding amounts, interest rates, and minimum monthly payments. This will give you an idea of where to start.

Identify which debts have the highest interest rates or the largest balances. You should focus on paying off these debts first, as they cost you the most in the long run.

Develop a budget that allows you to allocate a portion of your income toward debt repayment. Cut unnecessary expenses and use that money towards repaying your debts. Pay more than the minimum monthly payment on your debts. By paying more, you’ll reduce the principal balance faster.

If you have multiple high-interest debts, you may opt for debt consolidation, where you combine your debts into a single loan with a lower interest rate. You can also negotiate with creditors for a lower payoff amount through debt settlement. –Lyle Solomon, Principal Attorney, Oak View Law Group

Make Incremental Financial Changes

You probably didn’t suddenly fall deeply into debt. That means you’re unlikely to suddenly get out of it. Changing your spending and payment habits will gradually reduce your debt load while improving your credit score. 

The first step is to not miss any payments. This can be easier said than done, but it’s key. You might not pay your credit card bills in their entirety each month in the beginning, but you should do whatever you can to exceed the minimum payments. 

For other types of bills, it’s helpful to reduce your costs by lowering your level of service, for example by getting a cheaper cell phone plan.

None of these changes by themselves will magically get you out of debt, but they are all steps along the right path that will meaningfully lower your debt. Temmo Kinoshita, Co-founder, Lindenwood Marketing

Dispute Credit Report Errors

One strategy that has proven quite effective in reducing debt and improving credit scores is disputing credit report errors. A couple of years ago, I noticed an unfamiliar charge on my credit report. Instead of ignoring it, I took prompt action to dispute it with the credit bureau.

I gathered all the documentation and, after some back and forth, they acknowledged the error and corrected it. This removal of an erroneous charge not only reduced my debt but also led to a significant improvement in my credit score. It reminded me that keeping a vigilant eye on your credit report and challenging any inaccuracies can play a significant role in maintaining financial health. –Hafsa Unnar, Executive Assistant, On-Site First Aid Training

Diversify your Credit Accounts

One effective strategy I will recommend is diversifying your accounts. The idea is not to concentrate on a single type of credit but to have a mix of credit types, like mortgages, credit cards, and loans. 

This approach shows your ability to manage different credit responsibly. I once faced a period of financial strain with overwhelming credit-card debt. Instead of sticking to paying off just that, I took out a small, manageable personal loan. 

While it might seem counterintuitive to borrow more, the fresh line of credit actually improved my credit mix and overall score. Over time, this strategy, combined with prompt payments, helped me significantly reduce my debt and boost my credit score. –Ben McInerney, Director and Founder, Home Garden Guides

Use the Debt Avalanche Method

Allow me to share the debt avalanche method and how it’s been my trusted ally on my journey toward financial freedom.

The secret is to prioritize your debts based on their interest rates. Identify the debt with the highest interest rate and focus all your extra resources on closing it. Do this while you continue to make minimum payments on your other debts.

By removing the high-interest debt first, you virtually minimize the overall interest you’ll pay in the long run. Once you triumph over the first debt, it’s time to turn your attention to the one with the next highest interest rate.

I can attest to the effectiveness of the Debt Avalanche Method. It has allowed me to conquer my debts with purpose and determination while also elevating my credit score. Kathy Bennett, CEO and Founder, Bennett Packaging

Avoid Excessive Hard Inquiries

As someone who has suffered from a low credit score in the past, I can share that the best strategy is to avoid too many hard inquiries on your credit report. There was a time when I was naïve and allowed several potential lenders to perform hard inquiries, thinking it would help me secure a loan. I didn’t realize that these inquiries were actually lowering my score. 

When you apply for credit, a hard inquiry is placed on your report, which can negatively affect your score. Instead, do your research first, try to find a lender with whom you have a strong chance of approval, and only then allow a hard inquiry. By managing these hard inquiries wisely, I saw improvements in my credit score and a reduction in my debt. Alexandru Contes, Co-founder, ReviewGrower

Cut Expenses to Pay Off Debt

If you’re unable to increase your income, consider decreasing and even eliminating as many regular expenses as possible to earmark more funds for paying down your debt.

It’s painful to take a hard look at your expenses, but you’ll be motivated to make cuts when you total how much money you’re wasting, paying interest, and being saddled with a higher interest rate for a poor credit score.

You’ll be surprised by the expense reduction you can achieve and how quick and easy it can be. I did this myself because of the COVID-19 lockdown, and since I’m in the insurance industry, I knew to compare at least three companies to try for a better price. Within a few days, I changed my car and home insurance to save over $700 a year.

I then talked to SiriusXM and reduced my annual bill by 66% and also canceled streaming services I hadn’t watched in months. These moves allowed me to add as much as I could to minimum monthly payments on my debts, and so far, I’ve paid down two credit cards.Michelle Robbins, Licensed Insurance Agent, Clearsurance.com

Seek Professional Credit Counseling

If you are feeling overwhelmed or unclear about how to manage your obligations and improve your credit score, I recommend you get help from a professional credit counseling organization or financial counselor. 

These experts may offer you personalized advice, debt management plans, and budgeting solutions that are targeted to your individual situation. Credit counselors‌ can assist you in analyzing your financial situation, negotiating with creditors on your behalf, and developing a reasonable repayment plan. 

They can also educate you on financial literacy, assisting you in developing long-term money management habits. Their knowledge and experience can provide vital insights, allowing you to make well-informed decisions to minimize debt and enhance your credit score. Gerrid Smith, Chief Marketing Officer, Joy Organics

Request a Higher Credit Limit

From personal experience, I can attest that one strategy that can significantly reduce your debt and improve your credit score is to request a higher credit limit. Early in my career, I was managing a heap of credit-card debt. I sought advice and was advised to request a higher credit limit on my cards. 

Once approved, my credit utilization rate — the ratio of my outstanding balance to my credit limit — decreased dramatically, which positively affected my credit score. I have learned it’s not about utilizing the extra credit, but about reducing the ratio of your current debt to your overall credit. Haya Subhan, General Manager, First Aid at Work Course

Celebrate Debt Reduction Milestones

This method encourages you to turn the somewhat tedious process of reducing debt into a series of joyful, rewarding moments.

Every time you pay off a certain chunk of your debt — let’s say, $500 — celebrate this achievement in a frugal, yet fulfilling way. Maybe that means cooking your favorite meal at home, having a movie night with loved ones, or going on a hike.

The key is to treat these milestones not as painful sacrifices, but as victories. This approach has the double effect of creating positive reinforcement around clearing your debt and making the journey more enjoyable.

This strategy may indirectly improve your credit score. As you consistently reduce your debt, your credit utilization ratio—a key factor in your credit score—will decrease, and timely payments will also improve your credit history.

The entire process becomes something to look forward to rather than dread. Simon Niklaus, Founder, simonniklaus.com

Terkel creates community-driven content featuring expert insights. Sign up at terkel.io to answer questions and get published.

Leave a Reply