Debt reduction is one of the smartest steps a person can take to achieve financial freedom. Paying off your debt gives you better cash flow and saves you money. When paying off debt, it makes sense mathematically to first pay off the debt that has the highest interest rate. This will save you the most money because you will knock out this expensive debt first. You should try to reduce your expenses and increase your income in order to pay off the debt quicker. When you have debt with high interest rates, it makes more sense to put extra money towards this debt, rather than in a savings account with a low interest rate. One strategy is to first save $500. This will give you a cushion if any emergency expenses come up. Next, take any extra money and pay off the credit card or loan with the highest interest rate. When this debt is gone, move on to the debt with the next highest interest rate. Put all of the money you were putting towards the first credit card or loan, plus the minimum payment of the second loan or card to the second loan or card you are paying off. Continue this strategy until you have paid off all of your debt. When you receive a windfall, such as a tax refund, rebate, or gift, put this towards your debt as well. Some people like to pay off the smallest balance first, then move on to the next smallest balance. While this method doesnt make sense financially, it does help psychologically because you are able to pay off a credit card or loan faster.

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