The heavy use of debt has pushed many of us to spend more than we earn. In fact, according to data from the St. Louis Federal Reserve, the savings rate in this country averaged only about 6 percent from 2004 to 2007. The recent economic downturn, however, has caused Americans to actually start saving more. This shift in spending habits has occurred even in the midst of high unemployment. As more intelligent spending occurs on a personal level, it is likely that increased saving and also debt elimination will become an attainable goal for many.

Several weeks ago, I discussed the importance of developing a written spending plan. If you are truly serious about reducing your debt, your spending measured against your income must come into focus. Once you have a spending plan, areas can be uncovered that enable you to divert funds from spending to pay off what you owe. Remember, no debt-reduction plan will work without one major component: It is your duty to abstain from further debt. One way to stay on track is to begin to build up an emergency fund (several months’ income) to keep from using debt for urgent and unexpected needs.

Information you’ll need

Gather all of your most recent statements from your debtors. If you do not get a regular statement in the mail, try to access the Web site of the organization. The most important facts to assemble are:

• Payoff amount

• Minimum payment

• Rate of interest

• When any rates will change.

Strategy No. 1: Highest interest rate first

Economically, this makes the most sense. The less interest we can pay over the life of a loan the better, so knocking out the highest one is using good judgment. Make a list of the information you collected above in order of interest rate; highest to lowest. Pay the minimum payment on every outstanding loan with the exception of the one with the highest interest. As your spending habits change, additional income can be used to pay this first loan down quickly. When it is eliminated, move to the next highest rate. Do not fall into the trap of utilizing the newly freed-up funds to take on more debt. Instead, use it to your advantage to pay off the next debt that much faster.

Strategy No. 2: Lowest payoff amount first

If executed perfectly, strategy No. 1 is the most cost-efficient way to reduce your debt. Because each person’s situation is unique, it may not be the most effective over the long run. If your highest interest debt is also one of your highest balances, it can take months or years to notice much progress. It can seem like you are spinning your wheels because nothing is getting paid off. One way to accelerate the rate at which debts are eliminated is to list them in order of payoff amount; smallest to largest. Use the same approach as strategy No. 1 above, just in a different order. The benefit is you will begin to see debts eliminated very early in the process. This is very encouraging and can be cause for celebration along the way.

You should not expect your individual debt situation to improve overnight. With some diligence and planning, though, a lot of freedom can be found by distancing yourself from what ties so many of us down.