How to Get Out of Debt: A Complete Guide

Step 1: Assess Your Debt Situation

Before you can create a plan to get out of debt, you need to know exactly what you're dealing with. Many people avoid looking at the full picture, but this step is crucial.

List All Your Debts

Create a complete list of every debt you owe. For each debt, write down:

• The creditor name
• Total balance owed
• Interest rate (APR)
• Minimum monthly payment
• Due date

Include everything: credit cards, personal loans, medical bills, student loans, car loans, and any money you owe to friends or family.

Calculate Your Total Debt

Add up all your balances. This number might be scary, but knowing it is empowering. This is your starting point, and from here, you'll only make progress.

Step 2: Choose a Debt Payoff Strategy

There are two main approaches to paying off debt: the debt avalanche and the debt snowball. Both work—the best one for you depends on whether you're motivated more by math or quick wins.

Debt Avalanche Method

With the debt avalanche, you pay minimums on all debts and put any extra money toward the debt with the highest interest rate first.

Best for: People motivated by saving money. This method minimizes total interest paid.

Example: If you have a credit card at 22% APR and a personal loan at 12% APR, you'd focus on the credit card first.

Debt Snowball Method

With the debt snowball, you pay minimums on all debts and put extra money toward the smallest balance first, regardless of interest rate.

Best for: People who need quick wins to stay motivated. Paying off small debts quickly creates momentum.

Example: If you have a $500 medical bill and a $5,000 credit card, you'd pay off the medical bill first for a quick win.

Step 3: Create a Debt Payoff Budget

To pay off debt faster, you need to find extra money in your budget. Here's how:

Track Your Spending

For one month, write down every expense. Use a spreadsheet, app, or notebook. Most people are surprised by how much they spend on things like dining out, subscriptions, and impulse purchases.

Cut Unnecessary Expenses

Look for expenses you can reduce or eliminate:

• Subscriptions: Cancel services you rarely use (streaming, gym, magazines)
• Dining out: Cook at home more often
• Entertainment: Look for free alternatives
• Insurance: Shop around for better rates
• Phone/Internet: Negotiate with providers or switch plans

The 50/30/20 Budget

A simple framework for budgeting:

• 50% Needs: Housing, utilities, groceries, minimum debt payments
• 30% Wants: Entertainment, dining out, hobbies
• 20% Savings & Debt: Extra debt payments, emergency fund, retirement

When you're aggressively paying off debt, consider shifting to 50/20/30—putting 30% toward debt payoff.

Step 4: Consider Debt Consolidation

If you have multiple high-interest debts, consolidating them into a single loan with a lower interest rate can save money and simplify your payments.

When Consolidation Makes Sense

• You have multiple debts with high interest rates (above 15%)
• You qualify for a lower interest rate than you're currently paying
• You're committed to not accumulating new debt
• You want to simplify multiple payments into one

Consolidation Options

Personal Loans: Best if you have good credit (680+). Lenders like SoFi and LendingClub offer rates as low as 6-8% for qualified borrowers.

Balance Transfer Cards: Best for credit card debt if you can pay it off within the 0% APR intro period (usually 12-21 months).

Debt Settlement: Best if you have $10,000+ in unsecured debt and are struggling to make payments. Companies like National Debt Relief negotiate with creditors to reduce what you owe by 30-50%.

Step 5: Increase Your Income

Cutting expenses only goes so far. To accelerate your debt payoff, consider ways to earn more money:

Quick Income Boosts

• Sell unused items: Clear out your closet, garage, or storage unit
• Ask for a raise: Research market rates and make your case
• Pick up overtime: If available, extra hours mean extra money
• Tax refund: Put your entire refund toward debt

Side Hustles

• Freelancing: Use skills like writing, design, or programming
• Gig work: Drive for rideshare, deliver food, or run errands
• Tutoring: Teach subjects you know well
• Pet sitting: Care for pets through apps like Rover

Even an extra $200-$500 per month can dramatically speed up your debt payoff timeline.

Step 6: Stay Motivated

Paying off debt is a marathon, not a sprint. Here's how to stay on track:

Celebrate Milestones

Set mini-goals and celebrate when you hit them. Paid off your first credit card? Treat yourself to a nice (budget-friendly) dinner. These celebrations reinforce positive behavior.

Track Your Progress

Use a visual tracker like a debt payoff thermometer or spreadsheet. Watching your debt decrease is incredibly motivating.

Find an Accountability Partner

Share your goals with a trusted friend or family member. Having someone to check in with helps you stay committed.

Remember Your Why

Why do you want to be debt-free? Write it down and look at it when you're tempted to give up. Whether it's financial security, freedom to travel, or peace of mind, keep your motivation front and center.

Frequently Asked Questions

How long does it take to get out of debt?

The time to become debt-free depends on your debt amount, income, and strategy. With the debt avalanche or snowball method, most people can pay off $20,000-$50,000 in debt within 2-4 years. Debt settlement programs typically take 24-48 months.

What is the fastest way to pay off debt?

The fastest way to pay off debt is the debt avalanche method, where you pay minimums on all debts while putting extra money toward the highest-interest debt first. This saves the most money on interest. Alternatively, debt settlement can reduce what you owe by 30-50% if you have $10,000+ in unsecured debt.

Should I use savings to pay off debt?

Keep a small emergency fund of $1,000-$2,000 before aggressively paying off debt. This prevents you from going deeper into debt when unexpected expenses arise. Once you have this buffer, focus extra money on debt payoff.

Is debt consolidation a good idea?

Debt consolidation can be a good idea if you qualify for a lower interest rate than what you're currently paying. It simplifies multiple payments into one and can reduce your monthly payment. However, it only works if you stop accumulating new debt.

Will paying off debt improve my credit score?

Yes, paying off debt typically improves your credit score by reducing your credit utilization ratio (how much of your available credit you're using). The improvement may take 1-2 months to show up on your credit reports.