11 Tips for Getting Out of Debt
Household debt in the U.S. has been climbing in recent years, with many families living beyond their means, overloaded with bills and daily stress.
Getting out of debt is the best way to right a teetering financial ship. But it can be a long, slow — and often painful — process, especially if you approach it the wrong way. Using the right attitude and strategies is essential to your success in paying down your debt.
While there is no silver bullet for debt relief, you should consider a variety of ideas before diving in. We talked to some financial professionals and asked for their best advice to those striving to get debt-free as quickly as possible.
1. Keep a positive attitude
It’s essential to start by ridding yourself of the shame and negativity that often accompanies debt. Having debt is not necessarily a problem in and of itself. There are ways it can even be positive, such as serving as a tax write-off or as a way to fund your education. But it has to be managed properly. Poorly managed debt is the problem, not debt on its own.
Trying to get rid of your debt while maintaining a bad attitude will actually make it more difficult to meet your financial goals.
“You can create emotional obstacles that make it difficult to get out of debt,” said Leslie H. Tayne, founder and director of the Tayne Law Group and author of Life & Debt: A Fresh Approach to Achieving Financial Wellness. “You need to look at the debt situation in a different mindset. It’s not a burden, it’s something you need to manage.”
2. Figure out your priorities
Knowing what to prioritize is the first step toward figuring out how you can change your financial picture to enable debt relief. Everyone’s priorities are different, so it’s important to know that what worked for your friend or neighbor might not be the right answer for you.
“It’s not a one-stop-shop situation. It’s not one-size-fits all,” says Tayne. “No two situations are identical. You have to figure out what works best for you.”
Write down what’s most important to you. What are you willing to live without? What are the most important things you need to fund in the near future? Do you have certain timelines you need to keep for paying off various loans?
3. Try a specific debt-reduction method
While every approach to debt reduction involves the same basic idea — putting extra money toward the debt to get rid of it — there is a debate about which of your debts is best to prioritize.
There are two main schools of thought on this: Pay the debts with the smallest balances first, known as the debt-snowball method — or pay the debts with the highest interest rates first, also called the debt-avalanche method.
The advantage of the debt-snowball method is that you see progress faster, even though you may end up paying more money in the long run by not necessarily targeting the highest-interest loans.
By paying your smaller debts first (while also paying the minimum on the larger debts) you see success earlier in the process, which motivates you to keep going and helps you see how you could tackle those larger debts as well.
“The debt snowball is great for getting the small wins at first, which help propel you into paying off debt fast,” says Ashley Patrick, a Ramsey Solutions Financial Coach and owner of the website Budgets Made Easy. Patrick says she got rid of $45,000 debt in 17 months using this method.
“It’s important for someone to see momentum fast, as the journey to becoming debt free can be and feel long,” says R.J. Weiss, Certified Financial Planner and founder of personal finance blog The Ways to Wealth.
Meanwhile, the debt-avalanche method prioritizes the biggest cost savings by focusing on debt with the highest interest rates. While you may see fewer early successes if those high-interest loans are also your largest, you’ll likely pay off your entire debt sooner than you would if you were using the debt-snowball method.
There are various other methods to consider, some better than others:
The hybrid method
Pay off the lowest-balance debt first to get a quick win, then move along from highest to lowest interest rate.
“The hybrid method plays into psychology because you see results quickly,” said Tayne. “It might get you a faster result of an increase in credit score, depending on your other credit scoring details.”
The debt-tsunami method
Tackle the debt that has the most emotional impact first to work on draining the emotion out of debt-repayment. For example, if you have a small credit card bill that carries no emotion, but a slightly larger debt to your brother that is causing family tension, pay your brother back first.
“I am not always a fan of making financial decisions based on emotions, but the reality is if it’s keeping you up at night or you’re fighting with your family then it may make sense,” said Tayne. “By paying off your most emotionally draining debt, you’re able to feel the metaphorical weight of debt being lifted from you.”
The annoyance ranking method
Prioritize paying off the loans that annoy you more first. If you hate getting your credit card bill, but don’t mind the car payment because you love your car deeply, then pay the credit card first.
“Like the debt tsunami, the annoyance ranking method can help improve your attitude about your debt by ridding yourself of the annoyance,” said Tayne. “But it’s even more likely than with the tsunami method that your least-annoying debts are not the ones with the most significant balance or highest interest rate.”
4. Make a budget
A budget is your most powerful weapon for paying back your debt sooner. You should know exactly where all your money is going so you can take proactive steps to change things wherever you’re able. A good way of figuring this out is to construct a zero-based budget, which forces you to apply every dollar to some cost.
“It was a very eye-opening experience,” says Patrick, who used zero-based budget to get rid of her debt. “I didn’t realize where all that money was going, and it was mostly going to food! I cut expenses, food, eating out, and everything else I could. I adjusted our tax withholdings and our retirement contributions. A zero-based budget is all about being intentional with every dollar you have.”
5. Stay aware of upcoming costs
Making a budget is great, but there are other things you can do to enhance it.
Tayne recommends making your budget visual, even if you also use apps to track spending. She likes to write things out in a way where she can see what money is going where.
It’s also useful to combine your budget with a calendar so you can visually track when larger bills will be due. For example, know the due date of your monthly mortgage payment or rent, and track when you’re entering a month that tends to see high bills, such as bi-annual insurance premium payments.
“Don’t wait until the last minute to say, ‘Uh oh, I just got a bill,’” says Tayne. “Be aware that you’ll have oil bills in the winter or babysitting for the kids in summer. If you wait until the last minute, you’re scrambling to find out where the money’s going to come from.”
6. Cut your everyday expenses
One you have a budget in place, it’s time to trim the fat. Cutting your expenses can feel hard, so it’s best to work gradually. Think about what short-term sacrifices will bring you in long-term gains — and remember that anything you give up in order to cut costs can be brought back into your life later, when you’re on better financial footing.
As you’re considering what to cut, make sure to distinguish between wants and needs. You may want a new smartphone, but do you need it? You may feel the convenience of take-out food is essential, but could you do more meal planning and prep on weekends to reduce your desire to order out?
“A good place to start with savings is your food expenses,” says Weiss. “Your food budget can be cut pretty significantly by following simple rules such as cooking all your own food and bringing your lunch to work.”
Little changes add up. Can you turn your heat down and wear a sweater around the house? Or take a cold shower instead of cranking up the AC?
You may be able to renegotiate the rates on some bills such as utilities and credit cards. Other places to cut include savings set-asides, such as retirement accounts.
“I wasn’t willing to give up retirement contributions for the first six months,” remembers Patrick. “Once I realized how much quicker I could pay stuff off, I shut them off. It’s all about priorities.”
7. Spend wisely
Those enthusiastic (or stressed) about paying off debt quickly may be tempted to cut all spending to the bone, and obviously, reducing spending is a key. But daily life still requires a whole lot of cash — so it’s more important to be thoughtful than abjectly tight-fisted.
“The quick answer to get it out of debt is to stop spending,” says Tayne. “But you can’t stop spending, so let’s be realistic. Spend wisely.”
Think about what’s worth spending extra on. Perhaps you really value having the best meat money can buy, but what about generic condiments instead of the brand-name ones?
8. Move to a cheaper place
Your rent or mortgage is probably your largest bill. If you’re paying off a lot of debt and ready to make some big changes to succeed, consider whether there’s a cheaper place you could live — either a rental in a different neighborhood or another city with better home prices.
“Can you transfer your job to a cheaper area?” asks Tayne. “I’ve seen lots of people transfer out of New York because of that.”
If moving isn’t an option, ask about remote work opportunities that would allow you more flexibility about location. A longer commute to an affordable suburb is more bearable when you only have to do it three days a week (though beware of rising costs for car-maintenance and gas costs).
9. Sell stuff
How much money selling your belongings can bring you will depend on your stuff, of course. If there are valuables you’re hanging onto for sentimentality’s sake — your grandma’s china, for instance — look into what price they could fetch.
Are there big-ticket items you could trade in for cheaper versions, like selling your Mercedes and buying a Toyota to drive until the debt is paid off?
10. Increase your income
While cutting expenses is necessary and helpful, there’s far more debt-relief potential to be had in increasing your income.
After all, extra income can keep accumulating — the sky’s the limit. Plenty of people who earn six figures as freelancers and entrepreneurs started those careers as side gigs.
“While you can only save so much money, there is no limit to the amount you can make,” says Weiss. “As such, it’s important to think long-term, especially if you have a lot of debt to pay off.”
Brainstorm about any possible thing you can do to bring in extra money each month, whether that means working overtime, finding a part-time job, starting a side business like an Etsy shop, creating online courses, or doing gig work with companies like Uber and TaskRabbit.
“Make a list of ways to bring in an extra $1,000 this month, then do as much as you can,” advises Patrick. “This is a marathon, not a sprint.”
11. Refinance if needed
If you have a mortgage or student loans, look into refinancing. For instance, you can refinance your student loans at a lower interest rate if you or a cosigner have the credit to qualify. The move could save you a significant bundle of money, and you could even shorten your loan term to pay off your debt faster.
Refinancing your mortgage can be another good option if you have built up equity in your home and the interest rates are favorable.
What to do after you’ve paid off your debt
The most important thing to do after you’ve paid off your debt (and popped the champagne to celebrate) is to watch your spending carefully. Make sure to maintain your newfound financial freedom for years to come.
“Debt is mostly a behavior problem and only 20 percent a math problem,” says Patrick. “I can’t tell you how many people have filed bankruptcy, and within five years they found themselves in the same place again. In order to avoid debt, you need to develop new habits and a new mindset.”