How to get out of debt

Getting out of debt is not easy. It can be very frustrating. But I’m here to tell you that anyone can get out of debt. Becoming debt free is a great feeling. It provides you with the freedom to save more money, spend money on things that are important to you, and invest for your and your family’s future.

Debt is a big financial problem for many people. The average American’s personal debt is $90,460 according to Bankrate and Experian’s 2019 consumer debt survey. That is almost three times higher than the median personal annual income in America of $33,706 according to the St. Louis Fed’s 2018 estimate (median household income in America was $63,179 in 2018).

These levels of debt can make it feel overwhelming to even get started. But I am here to tell you that anyone can get out of debt, and I am going to show you how and give you additional tips.

Getting out of debt takes a plan and dedication. Are you ready to learn how to get out of debt? Learn how to make a plan to get out of debt starting today.

Acknowledge your debt and start keeping score

The first step to getting out of debt is acknowledging your debt and committing to making a change. 

You also need to start keeping score. You need to know how much debt you have so you can put together a plan to get out of debt.

Start by gathering your financial statements for your debts. This includes:

  • Credit cards
  • Student loans
  • Auto loans
  • Mortgages
  • Home equity loans / home equity lines of credit (HELOC)
  • Personal loans

You’ll need to make sure you have the following information for each of your debts (usually available on each statement):

  • Remaining balance
  • Payment amount and frequency
  • Interest rate
  • Prepayment penalties (if applicable)

Make a budget

Before making a plan to attack your debt, you’ll need to have a budget. A budget will help you decide how to use your money on the things that matter most to you.

I don’t believe in highly restrictive frugal budgeting. Instead I recommend spending money in the areas that bring you the most joy by prioritizing those areas of the budget. Those areas could be anything, such as hobbies, that Starbucks latte, paying down debt, investing to become financially independent, even buying or leasing a new car. The key is avoiding spending on other areas that are not important to you.

If you don’t already have a budget, here’s a guide to creating a budget in 5 simple steps. It also includes a free Excel budget template you can use.

Budget for debt payments

As part of your budget, you will need to identify how much money you have to make additional debt payoff payments. These are payments in addition to your regular minimum payments. If you have no money in your budget for additional debt payments, you’ll need to review and rework your budget.

You’ll need to prioritize additional debt payments, so I recommend making it a line item on your list of expenses in the budget. Go through your other expenses line by line and try to identify areas where you can reduce spending, especially in areas that are not as important to you as paying off debt. Also consider additional options to earn additional income that you could put towards additional debt payments. 

Make behavioral changes

Getting out of debt is more than just a financial problem, it’s also a behavioral and psychological problem. To get out of debt and stay out of debt, you also have to address the behaviors that got you into debt in the first place. Replacing your old behaviors with new habits is the solution.

Making new habits

After reviewing your list of debts, think about the reasons you have them. Sometimes debt for valid or useful reasons, when there are no better alternatives. For example, most people use mortgages to buy a house because the prices would require saving for many years. However, much of the debt that is accumulated does not materially benefit the individual.

Here are some common reasons why people get into debt. Do any of these apply for your situation? 

  • Student loan debt for undergraduate / graduate education
  • Desiring to have the latest iPhone or new car
  • Impulse shopping on credit cards
  • Making purchases to keep up and impress friends

These are just examples and there are many other reasons people get into debt. Considering your past debts, ask yourself the following questions:

  • Do the purchases still make you happy?
  • Were they necessary?
  • Given the chance, would you make the same decision again?

If you can answer no to any of these questions then you are on the right track. The next step is to begin thinking about these questions when you are considering making purchases in the future.

You have to start making small changes that become habits. Start with small decisions to avoid purchases. Put items back on the shelf or leave them in the online cart. For large purchases, really think about how much satisfaction and happiness they will bring you over the long term as you’re paying monthly bills for them. If it won’t bring you more happiness than the debt payments, it’s not worth buying!

If you really struggle with compulsive spending and have an addiction to shopping, you may benefit from counseling. These are treatable conditions if you consult with a licensed therapist or medical professional.

Make a plan to get out of debt

To start, make a list of your debts, remaining balances, interest rates, and payment frequencies from your statements.

There are two popular approaches to paying off debt, the avalanche debt payoff method and the snowball debt payoff method. Both have helped countless people pay off debt. 

Avalanche debt repayment method

With the avalanche debt repayment method you make minimum payments on all debts, and make extra payments on the debts with the largest interest rate. When that debt is paid off, you start making extra payments on the debt with the next highest interest rate. You do this without regard for the total balances of any debt. For example, if you have the following three debts.

  • Credit card – $1,500 balance, 15% interest rate
  • Personal loan – $600 balance, 7% interest rate
  • Auto loan – $6,000, 2.9% interest rate
  • Mortgage – $175,000 balance, 3.5% interest rate

Using the avalanche debt repayment method you would make all extra payments to pay off the debts in this order:

  • Credit card – 15% interest
  • Personal loan – 7% interest
  • Mortgage – 3.5% interest
  • Auto loan – 2.9% interest

Snowball debt repayment method

With the snowball debt repayment method you make the minimum payments on all debts like the avalanche method, but you pay off the debt in a different order. Instead of paying off debt by the highest interest rate, you payoff debt starting with the lowest balance, regardless of interest rate.

Using the same example as above, with the snowball method you would make all extra payments to pay off debts in this order:

  • Personal loan – $600
  • Credit card – $1,500
  • Auto loan – $6,000
  • Mortgage – $175,000

Debt payoff plan

Both methods have many advocates and have worked for many people. The avalanche method will pay off all debt faster than the snowball method because total interest paid is reduced by paying off higher interest debt first. For this reason, it is my preferred method.

However the snowball debt repayment method enables you to gain “momentum” by paying off small debts quickly. For some this is a psychological advantage that can provide the confidence to stick with the plan and continue paying off all of the debt. Even though this method takes longer, any method that works and helps you stick to the plan is a good method.

Additional tools to get out of debt faster

You may be able to accelerate your debt payoff by consolidating or refinancing your debt. This approach will not immediately reduce your total balance, but it can provide you with lower interest rates which will help you pay off debt faster by paying less interest.

Loan consolidation

If you have high interest debt (e.g., anything above 10%) and decent credit, you might consider some of the these ideas:

  • Debt consolidation loans
  • Personal loans
  • Home equity loans / home equity lines of credit (HELOC)
  • Credit card 0% balance transfers

Loan consolidation using these methods can be beneficial, but there are risks. Be sure to understand the terms including the interest rate, payment terms, and prepayment penalties. Interest rates should be fixed, not variable, and you do not want a loan if it has prepayment penalties. 

Home equity loans or lines of credit and credit card balance transfers are higher risk than debt consolidation and personal loans. Home equity loan or line of credit uses your home as collateral for the loan, meaning you can lose your home if you default. For this reason, I don’t recommend using a home equity loan or line of credit to pay off unsecured debt like credit cards or student loans.

Credit card companies sometimes offer introductory balance transfer offers at attractive rates, such as 0% APR on balance transfers for 12 months. There is usually a transaction fee (~3% of the total). These offers can be useful but only if you can pay off the entire amount before the end of the introductory offer. If you don’t pay it off before then you will begin paying interest at their normal rates (usually quite high).

Student loan refinancing

If you have student loans, you may be able to get a lower interest rate by refinancing. I refinanced my student loans with SoFi and reduced my interest rate by 1.3% and my payment by $200, allowing me to focus on repaying other higher interest debt. The process with SoFi is fast and really easy. Use this SoFi link to receive $100 when refinancing a student loan.


Getting out of debt takes time. Getting into debt does not happen overnight, and neither will getting out of debt. So make a plan and stick to it. Along the way, look for additional ways to pay off debt faster using some of the tools and tips I suggested, or reducing other expenses, and/or earning additional income.

Most of all, be patient. Paying off debt takes time. It can be frustrating. But every small additional payment gets you closer to paying off your debt. Stay focused on your goal, follow your plan, and you will become debt free.

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How to get out of debt when you don’t know where to start

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