Debt Consolidation
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Becoming Debt-Free: How To Get Out of Debt

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There’s plenty of cookie-cutter financial advice out there: Earn more money. Cut up your credit cards. Eat out less. Make coffee at home. These kinds of tips are obvious and, at times, may not be helpful. So before you cut up your credit cards, explore these realistic strategies on how to get out of debt.

Which debt should you pay off first?

When deciding how to best tackle your debt payoff, it’s important to become familiar with your financial obligations and which you want to repay first:

  • Credit card debt
  • Student loan debt
  • Auto debt
  • Mortgage debt
  • Medical debt
  • Tax debt

This is important because some types of debt will open new doors for your debt repayment strategy. For example, you may be able to negotiate medical debt. With mortgage and auto debt, you could consider refinancing. If you have credit card debt across multiple accounts, you could consolidate.

If you’re not sure which debt to pay off first, consider such things as the annual percentage rate (APR). A loan’s APR is a measure of your borrowing cost over a year and takes the interest rate plus fees into account. Consider each debt’s outstanding balance, as well. In general, paying off the debt with the highest APR is your best bet for saving money, especially if you’re locked into your terms and can’t refinance for better terms.

7 ways to get out of debt

  1. Debt avalanche: Pay off your highest-interest debt first
  2. Debt snowball: Pay off your smallest balance first
  3. Build a budget to pay off debt
  4. Dedicate unexpected windfalls to your debt
  5. Meet with a credit counselor to form a repayment plan
  6. Negotiate debt settlement with your creditors
  7. Consolidate debt with a personal loan or balance transfer credit card

1. Debt avalanche: Pay off your highest-interest debt first

The debt avalanche method involves paying off your debt with the highest interest rate first, and working your way down from there. For example, you might consider paying off debt in this order:

  • 25% APR store credit card
  • 22% APR rewards credit card
  • 7% APR auto loan
  • 6% APR student loans
  • 5% APR mortgage

This way, you’re paying less in interest charges over time. In the meantime, you’ll continue making minimum payments on your other debts — you’ll just be allocating extra cash toward your priority debt.

2. Debt snowball: Pay off your smallest balance first

Tackle your debt in baby steps using the debt snowball method. You’ll target your debt with the lowest balance first while making the minimum payment on your other debts. Once your low-balance debt is repaid, you’ll move onto the next debt.

This repayment method helps you cut down the number of debts you owe and gives you small wins to keep you motivated on your repayment journey. Using the same example above, try the exercise with debt amounts:

  • $1,000 rewards credit card debt
  • $1,500 store credit card debt
  • $10,000 auto loan debt
  • $35,000 student loan debt
  • $150,000 mortgage debt

Compared to the above example, you’ll notice that this list didn’t change much. That’s because low-interest debts like car payments and a mortgage are paid over a longer period of time than credit cards, which would ideally be paid off monthly.

3. Build a budget to pay off debt

It’s easy to lose control of debt when you’re not tracking your spending. Budgeting is a big part of staying out of debt, but it can also help you pay off debt faster.

Creating a budget gives you a clear idea of how you spend and save your money. Particularly if you have excess credit card debt, budgeting can give you valuable insight into where your income goes each month. Use a budgeting spreadsheet like the one below to track your spending for a month and see where you can allocate more income toward repaying debt:

In addition to a manual budgeting spreadsheet, you can also incorporate one of these budgeting strategies:

  • 50/30/20 budget: Split your income into three categories: 50% goes toward needs, 30% goes toward “wants” and 20% goes toward savings and debt repayment.
  • Zero-based budget: At the end of the month, your income minus your expenses should equal zero. This helps you account for every dollar earned, including debt repayment.
  • Envelope budget: Categorize your spending into virtual “envelopes,” such as food, utilities and housing. Allocate your budget at the beginning of the month to cut down on superfluous spending.
  • Minimalist lifestyle: Cut regular but unnecessary expenses, such as coffee shops and dining out, to maximize savings. Use any remaining income to dedicate to debt repayment.
Tip: Utilize an online debt payoff calculator to determine how much you should allocate toward your debt in order to pay it off within a certain time frame. This gives you a clearer image of how much you’ll pay every month, and how much you’ll pay in interest in the long run. You can customize your strategy to pay off debt based on how much you can put aside each month.

4. Dedicate unexpected windfalls to your debt

When you’re given an unanticipated sum of money, it’s easy to count the ways to spend it: Take a vacation or buy that new designer item you’ve been wanting. But your first instinct should be to use that windfall of money to pay down debt.

Don’t think of a money windfall as “extra money” that you can use for discretionary purposes. Use an inheritance, tax refund or work bonus to cut down on your debt and save yourself money on interest in the long run.

5. Meet with a credit counselor to form a repayment plan

Nonprofit credit counseling organizations offer low-cost or free debt counseling. A certified credit counselor will:

  • Offer money and debt advice
  • Help you set up a budget
  • Give you educational materials on money management

Depending on your circumstances, a counselor may set you up on a debt management plan, which sets a clear timeline for your debt repayment. Debt management plans come at a cost, typically a monthly fee.

You can find a certified credit counselor by searching the U.S. Department of Justice website.

6. Negotiate debt settlement with your creditors

When unsecured debt becomes too much to handle and you’re delinquent on payments, you may consider negotiating debt settlement with your creditors or a debt collector. Your creditor, like your credit card company, may agree to set you up on a payment plan, reduce your monthly payments or settle your debt for less than what’s owed.

Follow these tips for settling your debt:

  • Take notes. Write down the name of the person you spoke with, when you called and what they said. Compile all of this information in a follow-up email.
  • Get it in writing. Before you make any payments, get your proposed repayment or debt settlement plan in writing.
  • Be honest. Don’t commit to a debt repayment plan if you can’t keep up with the monthly payments. Explain your financial situation to the creditor.
  • Check the statute of limitations. If your debt is time-barred, you can’t be sued over it. However, you still owe the debt and it will show up on your credit report.

7. Consolidate debt with a personal loan or balance transfer credit card

Debt consolidation can help you repay your dues at a lower interest rate, saving you money over time. This repayment method also allows you combine multiple debts into one, allowing you to make just one monthly payment instead of multiple payments.

Credit cards and personal loans are popular ways of consolidating debt. However, both of these debt repayment options may be out of reach for consumers with subprime credit. You’ll have a hard time securing a good rate on a personal loan with bad credit, and you’ll find it difficult to qualify for a balance-transfer credit card without a good credit score.

If debt consolidation seems like the right money move for you, compare your options below.

Debt consolidation: Personal loans vs. Balance transfers
Personal loans Balance-transfer cards
How it works Repay multiple types of debt by opening a personal loan. Transfer the balance of one or multiple credit cards into a new credit card with better terms.
Credit required Varies by lender Very good
Benefits   Fixed APR and monthly payments

  May offer lower APRs than your current debts

  Consolidate many types of debt

  May be able to pay off debt at 0% APR

  Get all your credit card statements in one place

Risks  Subprime borrowers may not qualify

  May be subject to origination fees and prepayment penalties

  APRs vary widely depending on credit score

  Any remaining balance will be charged interest when the 0% APR period expires

  Can only be used to consolidate credit card debt

  Not all borrowers will qualify

Best for… Borrowers with good credit who have multiple types of debt. Borrowers with good to excellent credit who can pay off the debt within the intro APR period.

Once you’re debt-free: How to stay out of debt

Becoming debt-free is a difficult task, so it’s important to build better habits going forward so you don’t find yourself in the same situation again. Stay out of debt by monitoring your budget, building your savings and working on increasing your income. Here’s how:

Build your emergency fund

It’s important that you don’t sacrifice your emergency savings for debt repayment. You should always be saving at least some money in your emergency fund. That way, when you’re hit with a big, unexpected expense, you don’t need to resort to taking out debt again.

Many professionals advise that you have between three and six months worth of expenses saved up in case an emergency occurs. If that seems like a lot, start small; make your emergency fund by saving up one week’s worth of expenses, then one month, and build up from there.

Find a way to increase your income

Paying off debt on a low income is difficult, but staying out of debt when you don’t have a lot of extra cash is even harder. You don’t have to work your body to the bone to find creative ways to pay off debt.

  • Ask for a raise. It’s common to ask for a raise, so don’t be afraid to ask. Research the average income for your position online, and use that as leverage. Be prepared to advocate for yourself and your accomplishments in your role.
  • Take a certification course. See if your company will pay for the course, and they may increase your income once you receive your new credentials.
  • Start a side gig. If you have a car, you could consider joining a rideshare company. You could also rent out your home as a vacation rental or participate in paid surveys.
  • Sell unused items. Bring your old clothes and accessories to a consignment shop to make some quick money. You can also sell home goods, electronics and other clutter on online marketplaces like Nextdoor, Craisglist or Facebook Marketplace.

Utilize a budgeting app

Creating a budget can be hard work, but it’s worth the effort when you’re paying off debt. Even when you’ve repaid all your debt, it’s important to keep budgeting so you don’t slip into old money habits.

If you’re having trouble keeping up with a budget in the long term, you should at least download a budget app for your smartphone or on your computer. Budgeting apps can link with your bank accounts to track your spending automatically, so all you have to do is log on to see where your money is going.

Monitor and build your credit score

The credit score system isn’t perfect, but it’s one measure of your overall financial wellness. Plus, lenders and other financial institutions rely on your credit score to determine if you’re a good candidate for a loan or credit card.

You can request a full copy of your credit report from all three credit bureaus on Doing so won’t affect your credit, and it can give you a better picture of your finances, including:

  • Who you owe money to
  • How much money you owe
  • Your payment history

You can also check and monitor your credit score for free on the My LendingTree app.


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