Debt Consolidation

7 Strategies to Help You Get Out of Debt

The concept of debt is one that’s been readily embraced by today’s consumers, with the Pew Charitable Trusts reporting in 2018 that 80% of Americans have some kind of debt. Not only is debt commonplace, but Pew’s research also found that 70% of respondents considered debt a necessity in their financial lives. But just because debt seems inescapable, that doesn’t mean no one wants to get out from under its thumb.

There are almost as many strategies for getting out of debt as there are for getting into debt. Choosing the method that will help you succeed is about finding the one that best fits your needs, personality type and budget. To help you get started in isolating your ideal approach to debt removal, here are seven popular strategies.

1. Debt snowball

The snowball method of debt repayment centers around paying off debts in order of smallest to largest. So while you maintain minimum payments on larger debts, you make more aggressive payments on smaller debts to get them paid off quickly. As you pay off each smaller debt, you then roll that freed-up debt payment into the next smallest debt, and so on.

When you pay off a small debt, there are two immediate benefits. First, it frees up the money you were spending on minimum payments for it, which you can then use to pay off other debts. Second, it gives you a sense of pride and accomplishment. Both of these benefits can create a momentum that helps motivate you to continue and attack the rest of your debts. It’s a great option for those who thrive on immediate satisfaction, but it might not be the best method for those who have a lot of expensive debt that’s making it hard to make ends meet.

2. Debt avalanche

Snowballs are fun, but maybe for your debt, you’d prefer the drama of an avalanche. When you look at the cost of the debt you carry and are filled with the desire to pay off the most expensive debts first, you need to trigger a debt avalanche. To do this, you aggressively pay off your highest interest rate debt while maintaining minimum payments on all your other debts. Then, after you pay off the highest interest rate debt, you transition those payments into aggressively paying down the next highest one.

This method likely offers the most overall cost-savings, but for people who are motivated by quick results, it may not deliver enough wins early on to stay motivated.

Also, it’s not enough to just look at interest rates when considering the expense of your debts. Some debts with lower interest rates but higher balances, such as a home or student loan, may cost more in the long run. Yet because of the value provided by the debt, they may be worth paying more for, unlike high-interest credit card debt on long-forgotten purchases that offer little value.

3. Snowball-avalanche hybrid

If you want the fast-results of the snowball method with the high-interest punch of the avalanche, you can always go for a hybrid approach. With this method, you start by paying off your smallest debt and then, once that’s done and you experience that success, you start paying off the rest of your debts in order of interest rate (highest interest first).

4. Debt consolidation

If you want to get all your debt under one roof and one interest rate, you can consider a debt consolidation loan. For those who own a home, an equity loan offers one way to accomplish that. Others might look into a personal loan.

Whichever you choose, the goal is to reduce your interest rate with the new loan and make monthly payments simpler. Another benefit is that having a lump sum through a loan can give you some leverage to possibly negotiate with your individual lenders so they accept a smaller amount to pay off the debt.

For those with poor credit, it’s possible that debt consolidation loans won’t be possible or will include fees and interest charges that actually increase the cost of the debt, turning them into a less desirable option.

5. Follow simple spending guidelines

Sometimes, especially when your debt totals feel overwhelming, it’s best to start simple and allow gradual progress to satisfy you. Implementing simple rules to control your spending and reduce future debt while continuing to maintain minimum payments can all add up to valuable, slow-but-steady progress. Two simple rules you can follow are:

  • Not using your credit card for purchases under $20
  • Mentally adding a 20% fee to any item you want to buy on credit, since that’s roughly what you can expect to pay in interest when you carry a balance, and then re-evaluating whether the purchase is still worth putting on a card.

Following these simple spending guidelines might be the perfect choice for those who are intimidated by debt or who want to dip their toes into the concept of living debt-free, but it won’t give fast results to those who crave them.

6. Credit counseling

If you feel like your debt isn’t something you can tackle alone, then you might want to look into getting help from a credit counselor. Most credit counseling organizations are nonprofits that guide consumers in creating and following a budget, getting a handle on spending issues, creating payment agreements with creditors and possibly even negotiating down interest rates and fees. This can be an especially good option for those who are overwhelmed by their debt and have little experience developing and following a budget.

7. Debt tsunami

Being in debt is stressful, but some types of debt may be more stressful to you than others. And the more stressed you are, the harder it is to enjoy life and get your budget and debt under control. For those reasons, some people choose to prioritize their debt in order of the amount of stress it causes them. As an example, a debt that results in constant phone calls from the creditor might stress you more than a high-interest credit card bill. Money owed to a friend, family member or coworker might preoccupy you way more than an account in collections on which you’re making payments.

For some, this method will help them begin to feel better about their finances immediately, even if it doesn’t focus on cost savings or speed.

No matter how indispensable debt seems to be as a way to help live comfortably, work and contribute to society, there are always ways to reduce it. Some people, including those who wouldn’t believe it was possible, could be able to live without it. But even if total debt eradication isn’t your goal, reducing your debt and, as a result, your overall lifetime expenses is always an idea worth exploring.


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