30 Ways To Dig Yourself Out of Debt

kupicoo / Getty Images

kupicoo / Getty Images

Many people fall into debt, ranging from auto loans to credit card debt. These days, it’s especially hard to stay out of debt as people have either lost jobs or faced pay cuts.

Even if you stick faithfully to your budget, it can be hard to stay out of debt. Unforeseen life circumstances can force you to suffer financially as you try to pay for utilities and other necessities. And then there are the unexpected expenses that pop up in everyone’s lives: car repairs, healthcare costs or a new water heater.

If you’re in debt — especially if you’re getting calls from creditors — take action and find out how you can get yourself out of debt.

Last updated: Nov. 6, 2020

Put Down the Shovel

The first step to getting out of debt is to stop digging yourself further into debt. Stop using debt to fund your lifestyle. It’s not a bad idea to keep a credit card in case you need one for emergencies, but you can place it in a container of water in your freezer to keep yourself from using it frivolously. Waiting for it to thaw will give you time to examine whether there is another way to solve the problem.

Make Your Money Work for You

Get It Together

Now is the time to use your preparation to actually make a plan. First, gather statements from each of the sources of your debt, including credit cards, auto loans, medical bills and more. Make a master list of how much you owe and the total amount of money you’re paying on debt each month. Put them in order from the smallest payoff balance to the largest.

Add up minimum payments, then increase the amount by $100 or whatever you can truly afford. This is the total amount you’ll need to budget each month to get out of debt.

Consolidate Your Debt

You can free up money in your monthly budget by using a personal loan to consolidate higher-interest debt payments into one monthly payment at a lower interest rate.

By using a personal loan to consolidate higher-rate debt, you could possibly save hundreds, even thousands on interest.

Set Up Savings

It might seem counterintuitive not to put every penny toward paying off debt. But creating a savings account of just $500 or $1,000 can prevent a credit relapse down the road when you suddenly need a new set of tires or face an unexpected medical bill.

Make Your Money Work for You

Give Yourself a Visual

Keep your list of debts where you can refer to it often. That way, you can see the progress you’re making as you pay down debt. Or, post a whiteboard in your kitchen or home office and record your current debts. The act of entering lower numbers each time you pay down a debt — and watching the list dwindle as you pay things off — will give you a boost and serve as a deterrent to spending more.

Don’t Pay For Free Financing

Did you sign up for cards offering free financing for a limited amount of time? Pay them off in time so you’ll avoid getting hit with large interest payments. Also, know that new purchases can be hit with regular interest charges right away, according to the Consumer Financial Protection Bureau.

Start With the Smallest Balance

It makes financial sense to pay off the debts with the highest interest rates first. This will save you the most money in interest payments.

However, you might get a bigger emotional boost by eliminating the debts that are the smallest. You can pay off several small debts faster than you can pay off one bigger debt that might have a higher rate of interest. You might be more likely to stick with your debt-reduction plan if you see your list of debts getting shorter.

Make Your Money Work for You

Keep Tackling One Debt at a Time

Focus all your extra money on paying off one debt at a time and making minimum payments on the others. If you have an extra $100 in your budget, use it toward paying down the smallest balance.

Once that smallest balance is paid off, take the money you would have paid each month to the newly expired debt and apply the cash to the bill with the next smallest payoff. You’ll be amazed how fast the debt disappears.

Streamline Your Budget

Write a list of each monthly expense and total it. Draw a line through any monthly expenses you can eliminate. Start with things you pay for each month, but seldom use. These might include gym memberships or online news subscriptions. And look for overlapping expenses, such as paying for cable, streaming services and premium channels.

Pay On Time

Paying a day — or with some cards, even a few hours — late can trigger the dreaded late fee. While online apps such as Mint Bills can send you reminders, they’re not infallible. Keep a whiteboard calendar where you can easily see it, and use the board solely for recording bill due dates. Keep track of due dates and amounts owed for each day, and you’ll never be late again.

Make Your Money Work for You

Don’t Let Windfalls Blow Away

Use your tax refund, gift money from Grandma or holiday bonus to pay down a chunk of debt. Although it might be tempting to use the cash on a big splurge, paying off debt will give you a psychological boost without any buyer’s remorse.

Eliminate Consumer Debt First

Credit cards typically come with a higher interest rate than student loans, auto loans or mortgages. Eliminating all your credit card debt first will save you a bundle in interest while you’re working to pay down debt.

This is why you might want to consider consolidating your credit cards through a personal loan or a balance transfer credit card. It’s worth considering if you’re being held down by high-interest debt with big payments.

Trim the Fat

Make coffee at home instead of buying a cup. Stock a week’s worth of meats, cheeses, vegetables and bread in your work refrigerator for making sandwiches and salads instead of eating out. If you already have food on hand, you won’t end up eating out. Free up extra money by eliminating unnecessary incidentals.

Make Your Money Work for You

Do It Yourself

Do things yourself instead of paying to have them done. Wash your car, groom the dog or mow the lawn. Pay yourself what you’d normally shell out by applying it toward debt.

Make a Trade

Look for a local bartering group on social media, and offer your own skills in exchange for services you can’t perform yourself. Make sure you’re trading with licensed contractors for things like automotive or home repairs, or you will have little recourse if the work goes wrong. Use the money you saved to make a payment on debt.

Analyze a Downsize

If your lease is almost up, consider moving to a smaller apartment or to an area where rents aren’t as high. Or, sell your current home and pay cash for a smaller one. Sell your car to eliminate payments and get out of debt fast. Drive a more modest vehicle you can buy with cash.

Earn More at Your Job

Volunteer to work overtime or holidays at your job if you have the opportunity. If you’re paid on commission, put in more hours to make extra sales to create a higher income stream.

Are you due for a salary increase? Make a list of your work accomplishments that show your value as an employee.

Make Your Money Work for You

Get a Second Job

Look for part-time work you can do on a day off to help you get out of debt fast. Answer phones at a local real estate company on Saturday mornings, work a few evening hours at a retail store or be a part-time merchandiser for a manufacturing company.

Get a Gig

If taking on a second part-time job isn’t a realistic option due to kids or other obligations, consider a part-time gig you can do at home. Do freelance work such as consulting, pet-sitting or working as a virtual assistant, and put every cent you earn toward paying your debt. Drive for a ride-hailing service and make money moving people around in your free time or while the kids are at school.

Sell It or Rent It

Sell items online that you don’t use or need. Turn those had-to-have shoes you’ll never wear again into cash. Or, sell outdoor gear, exercise equipment and other items you don’t use. If you live in a business or tourist district, consider renting your driveway or parking space during hours when you’re not using it.

Stop the Madness

Eliminate the temptation to open new accounts by opting out of preapproved credit offers through OptOutPrescreen.com. Also, unsubscribe from department store emails alerting you to sales that might lure you to “save” money by spending on your store credit card. You’ll find the info on how to do so in tiny print at the bottom of the email.

Make Biweekly Payments

Many major banks allow you to pay half your minimum payment every two weeks. The advantage? Since you’re charged interest on your daily balance, reducing the balance biweekly will lower the amount of interest you pay over time. At year’s end, you’ll have made 26 payments — the same as 13 months — making it a good strategy for reducing debts on the cards where you’re just paying the minimum.

Lower Your Interest Rates

You can sometimes save money on interest by making a balance transfer to a different credit card. The downside could be a fee to transfer the balance. Due to this, you could consider a personal loan to consolidate higher-interest balances.

Whatever you choose to do, you’ll want to work diligently to pay off the balance. For credit cards, make sure the interest you’ll pay at the end of the promotional period isn’t higher than what you’re paying now.

Ask For an Interest Reduction

If you have a record of making payments on time — and your credit is in decent shape — ask your credit card company for an interest-rate reduction. Start with the card you’ve had the longest; customer loyalty counts. If you’re turned down due to your credit score, try again once you pay down some of your debt and your credit score improves.

Think Twice Before Closing Credit Cards

You might want to close cards as fast as you pay them off, but doing so can actually hurt your credit rating. Lenders consider your credit utilization ratio — the total amount of credit available to you versus your total debt — when deciding on your rate. So, closing unused accounts can make it harder to negotiate lower interest rates on your other cards.

Credit reporting agency Experian urges you to keep cards open until your total debt is less than 30% of your available credit. But Experian reminds you that the “30 percent” mark is just the upper limit — the lower your credit utilization ratio, the better.

If you’ve paid off your credit card debt, try to keep the cards open to help with your future needs.

Negotiate Medical Debt

If your overall debt picture includes medical bills, don’t be afraid to ask for a discount. Go to the hospital billing office in person and offer to settle the bill for what you can afford. Even if the hospital won’t meet your terms, it might offer you a significant discount. If you can’t pay the bill all at once, ask for an interest-free payment plan.

Lower Student Loan Payments

If your student loan payment takes up a large chunk of your monthly budget, check on the U.S. Department of Education’s Federal Student Aid website to see whether an income-based repayment plan can lower your monthly payment.

Although paying less per month extends the term of your loan, your student loan interest is likely less than what you’re paying on consumer credit cards. After eliminating your credit card debt, you’ll have freed up a significant amount of money each month to apply to your student loan and chop it down quickly.

Knock Out Your Car Loan Early

While you’re whittling away at credit card debt, you can still shorten the amount of your car loan without increasing your budget. For example, simply making half-payments every two weeks will pay off your car in 54 months instead of 60. Pay those last six months of payments toward your credit card debt to knock it out faster.

Take Years Off Your Mortgage

As your largest debt, your mortgage likely will be the last one you wipe out. Just like paying off your auto loan early, you can make half-payments biweekly to shorten the amount of time it will take to pay off your home loan by four years. In the process, you’ll also save thousands of dollars in interest. Make sure your mortgage company applies your payment to the principal when it receives the money rather than holding it until the next due date.

Get a Home Equity Line of Credit

Trading your unsecured credit card debt for a larger amount of debt secured by your home should only be a last resort. If you decide to solve your debt problem with a HELOC, only get a loan that covers the amount needed to pay debts. And close the cards you’re paying off so you’re not tempted to start running them up when you’re low on cash.

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