How To Get Out of Debt: 7 Proven Steps

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If you’re wondering how to get out of debt, you’re not alone — according to data from Experian, the average American is $105,000 in debt. Whether your debt is from student loans, credit cards, mortgage loans, auto loans, medical bills or some other form of debt, it might seem impossible to dig yourself out of it. But if you make a plan to tackle your debt head-on, you can ease your way out of your current financial predicament.

Here’s a quick look at the steps you can take to get out of debt:

1. Understand exactly what you owe.
2. Stop taking on new debt.
3. Choose a debt payoff strategy that works for you.
4. Create a budget focused on debt payoff.
5. Increase your income where you can.
6. Lower your interest rates.
7. Seek help if you’re struggling.

Know Where You Stand Before You Start Paying Off Debt

Before you begin the process of becoming debt-free, you should know exactly what you’re dealing with. Gather all of your credit and debt information, including:

• Your most recent statements from any outstanding loans and debts, including student loans or medical bills
• Your credit card statements
• Your credit report, which you can obtain for free each year through AnnualCreditReport.com
• Your credit score, so you can find out if you’re eligible for a debt consolidation loan or lower interest rates

How To Get Out of Debt: 7-Step Guide

Once you’ve gathered all of your information, follow this step-by-step guide for paying off debt.

Step 1: Understand Exactly What You Owe

Having a clear view of how much you owe and to whom will help you to tackle your debt, and could even make it seem more manageable.

Compile a list of all your debts using a debt tracker or spreadsheet. When listing, make sure you note the following:

• The name of each creditor
• How much you owe
• The interest rate on the debt
• The minimum monthly payment

Your credit card statement also shows how much you’d need to pay each month to become debt-free in three years. Add that amount to your list for reference.

Step 2: Stop Taking on New Debt

To get out of debt, you need to stop taking on additional debt. Follow these steps:

1. Remove all credit cards from your wallet and put them somewhere that’s inconvenient to access. Consider a safety deposit box at your bank or a safe at home.
2. Delete credit card information that’s saved in digital accounts. Change credit card payment information on any recurring subscriptions to the payment information for your debit card or bank. If you can’t afford them, cancel the subscriptions.
3. Only use cash or your debit card for purchases.

Pro Tip

If you need to keep a credit card for true emergencies — like unexpected car expenses — store it safely and use your creditor’s lock features. This forces you to manually unlock it before use, giving you time to rethink impulse purchases.

For extra security, freeze your credit with all three credit bureaus to prevent new credit applications without your approval.

Step 3: Choose a Debt Payoff Strategy That Works for You

Choose a debt payoff strategy to help you get rid of your debt. Here’s a look at three of the most popular:

Debt Snowball Method

• Focus on paying off the smallest balance first for a quick win.
• Make minimum payments on all other debts.
• Once the first debt is paid off, “snowball” the money into the next smallest debt.
• Continue doing this for each debt until it’s all paid off.

Debt Avalanche Method

• Focus on the debt with the highest interest rate.
• Set up minimum payments for all other debts.
• Put as much money as you can toward your top-priority debt.
• Once it’s paid off, tackle the next-highest interest debt.
• Follow the same steps until all the debts are paid off.

Debt Consolidation Loan

• Combine all of your credit card payments into one single payment with a lower interest rate.
• Keep in mind that a longer loan term means you’ll be paying interest over a longer amount of time. This could end up costing you more.
• Do the math to make sure consolidating is worth it before you commit.

Step 4: Create a Budget Focused on Debt Payoff

It’s also important to revise your budget so it works with your debt payoff goals.

• Identify and discontinue all nonessential expenses to prioritize debt payoff.
• Track all income and spending to know where money is going and put any extra toward debt.
• Consider budget apps to help, such as You Need a Budget (YNAB) or EveryDollar.

Step 5: Increase Your Income Where You Can

One way to pay off debt more quickly is to increase your income.

• If you’re working, see if there are opportunities for extra shifts or additional work.
• Consider side hustles that you can easily start with little or no money, such as tutoring, dog walking or delivery services.
• Look around your house for items that you can sell on platforms like Facebook Marketplace, OfferUp or Mercari.

Keep In Mind

Finding just $100 extra per month to put toward debt adds up to $1,200 a year. Small changes can make a big impact on your payoff progress.

Step 6: Lower Your Interest Rates

With high interest rates, your debt will continue to rise more quickly, making it harder to pay off. One way to lower your interest rate is to make a balance transfer to a credit card with another bank.

Some credit cards have 0% APR for 18 months, so you can use this time period to pay off your balances without your debt rising every month. However, there’s usually a 3% to 5% fee for balance transfers.

Another way to lower your interest rate is to call your credit card company or lender directly and ask for an interest-rate reduction. If you’re a long-time customer, they might lower your rates as a way to thank you for your loyalty.

Step 7: Seek Help If You’re Struggling

Paying off debt can be difficult and overwhelming.

If you’re struggling, avoid predatory settlement firms and payday loans, which can sink you further into debt. Instead, check into nonprofit credit counseling resources, such as the National Foundation for Credit Counseling.

NFCC-accredited nonprofit credit counselors can create a debt management plan to help you manage and pay off your debt. Here are some key points to know about the process:

• Debt payments are consolidated into one monthly payment.
• Interest rates are often lowered.
• Fees are waived to make paying off the debt more manageable.
• DMPs typically take three to five years to pay off.
• Federal student loans, car loans and mortgages aren’t eligible.

Bonus Tips To Stay Motivated

However you choose to pay off your debt, consider these tips to help you stay motivated and consistent during your journey:

• Write down your “why” and review it regularly.
• Track your progress with a debt payoff chart.
• Set debt payoff milestones and reward yourself with a free or low-cost treat.
• Join online debt-free communities for motivation.

6 Common Mistakes To Avoid When Paying Off Debt

Here are some common mistakes to avoid as you pay off debt:

• Only paying the minimum payments: It will take a lot longer (and cost a lot more money) this way.
• Not prioritizing high-interest debt: By knocking out this debt first, you’ll save more money.
• Not building an emergency fund: Some people use credit cards in emergencies because they have no other option. With an emergency fund, you can avoid this. Start building one with as little as $25 per month.
• Falling for scams promising quick fixes: Getting out of debt doesn’t happen overnight. It takes time and effort.
• Borrowing from your retirement funds: Not only will you have to pay taxes and fees, but it also takes away the earning power of your retirement funds.
• Not asking for help when you need it: Getting out of debt can be challenging. Seek out trusted resources like nonprofit credit counseling if you need it.

Final Take: Becoming Debt Free Is Possible

Learning how to get out of debt is achievable for anyone — no matter how much you owe.

If you have multiple debts to pay off, keep an eye on your repayment progress every month to stay on track. Once one debt is paid off, shift your focus to your next priority debt until everything is paid in full.

As you move through the repayment process you should:

• Monitor your credit score to see if it’s improving. Your credit score is a good indicator of your financial fitness.
• Consider doing a balance transfer or a credit consolidation if you haven’t already.

If you follow the action plan, you can achieve a debt-free life. If you need additional funds to pay off your debt, consider working more hours at work, ask for a raise, get a second job or take on a side gig. Start with just one step today and commit to being debt-free.

Gabrielle Olya contributed to the reporting for this article.

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