Everyone knows that economic times are tough right now and what better time to create a debt reduction plan? The government is trying to cut spending, businesses are cutting spending (or closing entirely!), and if you want to make sure you survive this era of tight pockets, you need to live within your means.

The first step in creating a debt reduction plan is creating a budget. There are many tools online that will help you do this, but nothing really beats the old pen and paper. Take a piece of paper and make two columns: Income and Expenses. In the Income column, list all of the money you have coming in, be it paycheck, government payments, interest or dividends, or income from other sources. The hard part is the Expenses column.

In the expenses column, it is best to divide it up in sections. Some expenses are mandatory and don't change from month to month: rent or mortgage payment, car loan, childcare expenses. Some expenses are mandatory and do change from month to month: utilities (gas, electric, phone), gas for your car, and food. Some expenses are optional: gym membership, cable bill, clothing, etc. The first place to start looking for savings is in the optional category.

If you can save $500/year by eliminating a gym membership and starting a walking program around your neighborhood, do it! If you can save $1,200/year by eliminating your daily Starbucks, do it! You will soon be amazed at what you can save by eliminating everyday items that you THINK are mandatory, but are actually luxuries you can't afford.

Once you have eliminated savings, you can allocate those savings to reducing your debt. Most Americans have numerous credit cards, many of which they are paying only interest. By paying only interest, you will essentially pay that bill forever. You need to pay down the debt! Use the savings you have found to pay off the credit cards with the highest interest rates first.

After the credit cards with the highest interest are paid off, start paying down the others. Do not take on any more debt during this time, no matter how tempting it may be. Credit card companies make a living out of keeping you in debt - don't let them do it to you!

The key to a viable debt reduction plan is to eliminate all optional spending and put that money to work by paying off your debt.