Becoming Debt Free

The Complete Guide

Let’s Get Started

Taking Control

You’re in debt and you want to get out. You’re not alone.

Just because you’re in debt now doesn’t mean you have to stay that way. You can go from feeling stuck in a neverending debt cycle to being in command of the debt in your life.

Before we talk strategy, first we need to establish where you are financially so it becomes clearer what solutions apply to you.

The next few sections are a quick self-assessment. Answering these questions will help you determine your best plan of attack. You can also skip ahead and look at solutions via the chapter navigation button to the left at any time.

A balance transfer credit card may work for Susie and Greg, but that doesn’t mean it’s your best course of action. Your situation may call for a debt consolidation loan, or working with a debt relief company, or even filing for bankruptcy.

Select a section below to begin your assessments.

Section One: Your Spending

Spending Wizard

“Do I spend more than I earn each month?”

A lot of people don’t know the answer to this question. Why? Because there’s a big difference between how much you spend each month and how much you pay in bills. Every month your paycheck goes to two primary categories: fixed expenses and unfixed ones. A fixed expense is a predictably recurring bill like your rent, utility bill, TV streaming, student loans and minimum credit card payments. Unfixed are expenses like grocery shopping, gas and online shopping.

Obviously, loans and credit cards help spread out larger purchases into manageable bites, but it’s often difficult to picture how one big credit card bill really impacts your financial life. The illustration below demonstrates how credit cards are fixed expenses that go up over time. Worse, these often include interest payments, which can also make it difficult to eliminate the debt. As long as these payments stick around, they’re essentially a type of pay cut.

Getting a handle on how much you truly spend versus how much you earn is paramount to taking control of your debt. To figure out how much you spend each month, start with what you know. Your bank and credit card statements are your friend while figuring out your spending. Downloading a budgeting app can also help keep your typical spending under control and even track how your spending is shaping up based on monthly targets you set.

Download Spreadsheet
Interactive Wizard

Your Spending Budget

This worksheet will help determine everything you spend money on, so you can make powerful decisions over your debt and maximize the potential benefits of this guide.

Select to Start Spending Budget

Step 1: Monthly Take-Home Pay

Step 2: Monthly Non-Debt Fixed Payments

These are recurring expenses that happen every month like clockwork but aren’t debt. We’ll handle debt and credit card payments separately. Leave fields that don’t apply blank.

Step 3: Monthly Fixed Debt Payments

These are all recurring debt payments that appear on your credit report except credit cards and personal loans (see below). Leave fields that don’t apply blank.

Usable Income

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Income minus fixed expenses

Step 4: Credit Card Monthly Minimum Payments

Step 5: Monthly Variable Expenses

These expenses can change month to month. Obviously, these are the hardest to estimate. Try to find what you have spent or will likely spend in a year and average them out by month, including vacations and holiday expenses. Looking at a few credit card or bank statements can help a lot.

Disposable income

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Income minus all expenses

Disposable income is the money you have left over after you cover necessary living expenses, such as food, shelter, transportation and healthcare. As obvious as that may seem, how much of it you actually have may not be so clear. Ultimately, it’s vital to know — or, at least, guestimate — that amount, because you can use it to pay off your debt faster and make informed financial decisions. This worksheet should give you a good idea where you land.

If you have little to no disposable income, you have two primary options.

The first option is to increase your income. You don’t necessarily need a different job, but side gigs can help, such as ride hailing or picking up food service or grocery shifts. Your life situation may limit this option, but if you’re able, it can be a good way to get you back on track and add some financial stability to your life.

Another option is to cut back on spending where possible. If you know there are areas in which you splurge, you may want to dial them back for a while so you can move ahead. Here are some common techniques to reduce spending easily:

  • Audit your subscriptions and determine if you can pare back on magazines, music services and media accounts, such as Netflix. Look into splitting the cost with friends or find free alternatives. If you don’t, cancel them — this is cash that can go straight to ending debt.
  • Instead of grocery shopping when you’re hungry, plan your meals ahead of time. That way, you’ll buy ingredients you can use again and again so less goes to waste. Use leftovers or meal prep for lunch instead of dining out.
  • Make use of loyalty cards and coupons. Sign up for rewards programs at stores you visit frequently and check out coupon apps, such as SavingStar.
One of the most important considerations when making adjustments to your finances is to figure out how to make the minimum payments at least. If you don’t have or can’t earn enough cash (cash flow) to make that happen, it will be difficult to find a repayment strategy that doesn’t involve some form of debt forgiveness, which can impact your credit score negatively.

Section Two: Your Debt

Debt Wizard

“How much debt do I have, and is it too much?”

This one’s a biggie, so we’ll address it by looking at two ways to measure debt: debt burden and total debt. Let’s look at them one at a time.

Debt Burden: How much of your paycheck goes to debt

If you’ve ever bought a house, you may be familiar with your debt-to-income ratio (DTI). It’s a number that shows how much of your income is allotted to servicing your debt. As the example below shows, you can calculate it by dividing your monthly debt payments (that show on your credit report) by your monthly pre-tax (gross) income.

Interactive Wizard

Calculate Your Own Debt Burden

The aim is to get your total debt burden (DTI) down to below 36 percent of your income, with no more than 28 percent servicing your mortgage, if you have one. Let’s find out where you are now.

All monthly expenses that show on your credit report Complete Steps 3 and 4 of the Spending Wizard

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Debt Burden

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Monthly debt payments ÷ gross monthly income × 100

The big picture: "Total Debt"

​​If “debt burden” represents how much of your individual paychecks are consumed by debt payments, “total debt” takes a wider view. Also known as debt-to-income (DTI), it compares all of your unsecured debt obligations to your annual income. Ideally, you want your unsecured debt to be less than half of what you make in a year.

The example below shows how total debt works. Total debt over 50 percent is cause for concern, and more than 75 percent is trouble.

Interactive Wizard

Calculate Your Own Total Debt

Remember, the goal is to have a Total Debt figure where your unsecured debt is less than 50 percent of your annual gross income. If it’s over that, we’ll help you troubleshoot later on.

Total Debt

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Unsecured debt balances ÷ annual income × 100

Section Three: Your Credit

Credit Score

“What is my credit score?”

Your credit score is one of the most important gauges of your overall debt health. Lenders use it to evaluate how risky it might be to lend you money because it’s an indicator of your past credit habits and behaviors.

These factors include the following:

  • Payment History — No/fewer late payments is better.
  • Age of Credit — The average age of all your credit accounts. Older is better.
  • Utilization — How much of your total credit limit you use. Lower is better.
  • Negative Marks — Records of delinquent or derogatory accounts. None is better.
  • Credit Inquiries — Lenders viewing your credit score for new applications (aka “Hard Pulls”). Fewer recent pulls are better, although for some, like mortgages and student loans, multiple hard pulls in a 45-day period are counted as a single pull.
  • Available Credit — Total amount of credit available (unutilized). More is better.

Accessing your credit score is now easier than ever and completely free. This is great because you can make more informed decisions to improve your score faster. Higher credit scores mean lower rates (aka lower payments), larger credit limits and greater added benefits (like rewards credit cards). In short, the better your credit the more willing banks will be to lend you money or to refinance existing debt for fairer terms.

Once you get your credit score, pay attention to its range so you’ll know how easy it will be for you to eliminate your debt. The better your score, the easier eliminating your debt becomes.

Interactive Wizard

What’s your credit score?

To make the best use of this guide and bolster your future financial progress, you should know your credit score. Select the score below that best represents you.

If you don’t know your current credit score, create a free account with LendingTree to get unlimited access to your credit score, and a lot more.


If you have this credit score, it’s a work in progress. You’ll have to put in some extra effort, but you still have options for getting out of debt.


Good credit is a solid place to be. There are plenty of strategies available to you for reducing and paying off your debt.

Very Good / Excellent

If you have a score like this, you can request a loan with a lower interest rate to pay off your debt faster and more cheaply.

Your Credit Score

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If you have good or excellent credit already, you may be eligible for financial solutions like personal loans and balance transfer credit cards to enhance your debt elimination journey. If you’re not eligible, or don’t want to consolidate your debt, you can try other self-managed methods to pay down your debt. As you pay off your debt, your credit could begin to improve as you reduce your total debt and increase the amount of your available credit (each payment effectively boosts your credit).

No matter where your credit falls on the scale, you can track it for free with the LendingTree app.

Financial Summary

Your Debt Plan

Check out this handy summary based on the previous wizards. The summary will help give you a clearer picture of your overall debt situation and help you find a matching solution in the next part of the guide.

Your Debt Plan

Personalized Analysis

The first thing you must do before you can pay off your debt is understand your financial situation. If you’ve filled out the prior wizards, this summary will help you a lot.

It also helps to have handy a list of all your current balances, annual percentage rates (APR) and minimum payment requirements. You can use any method that will help you stay organized, whether that’s a spreadsheet or a handwritten list in a notebook. The key is to pick a format that will be easy to access and update over the months (and possibly years) you spend working on your credit health.

Your Monthly Spending

Monthly Usable Income (income after fixed expenses)

Complete for Result%% usableIncome | currency %%

Monthly Disposable Income (income left over after all expenses)

Complete for Result%% disposableIncome | currency %%

Complete the Spending Wizard for your spending analysis.

Your Debt

Your Debt Burden (debt payments compared to income)

Complete for Result%% debtBurden %%%

Your Total Debt (money owed compared to annual income)

Complete for Result%% totalDebt %%%

Complete the Debt Wizard for your debt analysis.

Your mortgage is currently an excessive debt burden. You may want to look into refinancing your home to lower your payments.

Your Credit Score

Your Credit Score

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Your Debt Plan Results

Complete the previous wizards and we can help point you in the right direction, or you can just continue on to the solution planssolution plans on your own!

Recommendation: Expenses Troubleshooter

You have indicated you spend more than you earn. We strongly recommend you visit our Expenses Troubleshooter. Until you spend less than you earn, paying off your loans sooner will not be possible.

Recommendation: Negotiate Your Debt

Your answers indicate you have very high total unsecured debt. Typically debt this high can only be cleared by bankruptcy, or possibly through debt negotiation. We recommend you learn about all the options available to make a decision right for you.

Recommendation: Personal Loans Could Help

Based on your results, you’re most likely to be eligible for a personal loan, which can clear your credit cards and consolidate them into a repayment plan with a fixed payment. The amount of money saved on interest can be impressive. You should also read about Balance Transfer Cards as an opportunity if you increase your credit score.

Recommendation: Balance Transfers

Based on your results, you’re likely eligible for both personal loans and balance transfer credit cards. Balance Transfers typically offer the lowest rates, so between them it’s often possible to eliminate all or most of your high-interest debt and start paying them down with low interest — or even no interest at all!

Your Debt Plan Results

We have one more question before we provide you with a recommendation. Are you struggling to pay minimum debt payments?

Recommendation: Build Your Credit

It looks like the best place for you to start is working on techniques to increase your credit. Once you have increased your credit score, new debt-busting opportunities may become available, so it’s worth the effort.

Recommendation: Negotiate Your Debt

When debt payments become a major strain, finding ways to negotiate with creditors to reduce the burden can make the difference between defaulting and debt freedom.

Next Chapter
Balance Transfers