How to get out of debt

No matter the size or type you carry, there are ways out.

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Lady reviewing bills.

Debt can put unimaginable strains on our lives, but even the biggest debts can be cleared with a solid plan. You may not know what to do first — especially with the phone ringing and letters coming in from the companies you owe money to.

Take a breath and explore options based on your unique situation, including do-it-yourself tactics, debt consolidation and relief.

3 strategies for getting out of debt

From designing a personal budget to using an automatic savings app, there are a number of ways to deal with debt. But doing it alone requires a lot of financial discipline.
Combine multiple debts into a single monthly payment. Note that not all debt types qualify and those with poor credit may have difficulty securing an optimal rate.

Debt relief companies offer services designed to get you out of debt, including credit counseling, debt negotiation and bankruptcy services. But most charge a fee for their services and not all relief companies are legit.

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11 tips for paying off debt

There are plenty of lifestyle tweaks you can make to tackle debt head on:

  1. Create a budget. Creating and sticking to a personal budget can help you stay accountable and on top of your payments. By understanding exactly how much money you have left after bills and necessary expenses, you’ll be able to know how much you can realistically put towards your debt.
  2. Pay more than the minimum. Paying the minimum payment often just covers interest. Pay more and chip away at the principal balance. You’ll get out of debt sooner than later and pay less interest in the long run.
  3. Cut back nonessential spending. Track your monthly spending habits and see where there’s room to cut back. Don’t deprive yourself of small pleasures like coffee or going to see a movie. Just be conscious of your spending and try not go overboard on nonessentials.
  4. Negotiate lower interest rates. Credit cards with high interest rates can slow down how fast you pay back debt. If you’ve been making on-time payments, have a good credit score and low credit utilization rate, you may be able to negotiate a lower rate by getting on the phone with your bank or credit card company.
  5. Do a balance transfer. You can save money on interest by moving your debt to a balance transfer credit card that offers a 0% APR introductory rate. Consider doing a balance transfer if your current credit card has an interest rate that’s much higher than similar cards on the market.
  6. Ditch the credit card. If you can, leave the high-rate credit card at home and rely on money you actually have. Once you’ve set a budget, deposit what you’re willing to spend into your checking account and use that as your allowance.
  7. Get a side hustle. From freelancing to driving for Uber, there are plenty of ways you can add to your annual income. You can also consider picking up some seasonal work or taking a night job a few days a week to make some extra dough.
  8. Sell your old stuff. You might have some items collecting dust that other people are looking to buy. Turn you old stuff into cash by starting an eBay account, having a garage sale or selling on sites like Craiglist.com and Nextdoor.com.
  9. Ask for a raise. Use this tactic within reason. If you’ve proven your worth and have been with a company for a while at the same hourly rate or salary, you have nothing to lose by asking for a pay increase.
  10. Make money online. Find paid surveys, write product reviews or become a brand affiliate to make some cash online.
  11. Use windfalls wisely. If you get an unexpected lump sum — say from a tax return — resist the temptation to splurge and apply it to your debts.

Self-managed solutions

You have several options for tackling debt on your own — some more difficult than others. And the amount of debt you carry may dictate how long it takes.

Good for people with:

  • A steady income who make on-time payments and want to be debt-free faster.
  • Debts less than $15,000
  • A debt-to-income ratio below 30%

Debt avalanche or snowball method

If you carry multiple debts, the debt avalanche and snowball methods can be helpful for paying down your total debt or decreasing the number of creditors you owe.

The avalanche method focuses on getting rid of debts with the highest interest rates first. Any extra money you save is applied to the next debt.

The snowball method involves tackling your smallest debts first. With each debt you eliminate, you have more funds to put toward the next debt in line.

Save more money

Simplify your savings goals with tools designed to passively deal with your debt:

  • Automatic savings apps. An automatic savings app rounds up your daily transactions and transfers the difference to your savings. They can also work with you to cut back on common expenses.
  • Budgeting software. Both business and personal budgeting software help balance the books, identify overspending and create a personalized saving plan.
  • Scheduled transfers. Utilize the set-it-and-forget-it method by creating an automatic weekly or monthly transfer from your checking account to your savings account.

Curb overspending

Eliminate overspending and tighten the reins on your personal budget with the following:

  • Create a budget. Design a personal budget by hand or with the help of budgeting software to hold yourself accountable for where your money goes.
  • Track your transactions. With so many apps to help you monitor your transactions, realizing exactly how much you spend can be an eye-opener.
  • Slow impulse spending. If you struggle with impulse purchases, impose a 24-hour rule before you complete the purchase.
  • Stick to cash. Planning a night out? Control what you spend by leaving your credit card at home and bringing cash.

Debt consolidation

Debt consolidation makes juggling numerous debts more manageable by combining them. Instead of making multiple payments to your creditors, debt consolidation combines what you owe into a single monthly payment. Debt consolidation loans and balance transfer credit cards can help you get your debt in one place.

Good for people with:

  • Some type of income who struggle to keep up with payments and want to save on interest.
  • Debts more than $1,000
  • A debt-to-income ratio between 30% to 50%

The types of debt you can consolidate are:

  • Credit card debt
  • Personal loans
  • Business loans
  • Student loans
  • Medical bills
  • Lines of credit
  • Tax debt

Should I use a payday loan for debt consolidation?

While it’s possible to use these short-term loans to consolidate your debt, be cautious of payday loans — they’re among the most expensive on the market. Payday loans are known for their sky-high interest rates, which could put you at risk of spiraling into a cycle of debt.

Two safer debt consolidation alternatives are balance transfer credit cards and loan refinancing.

Balance transfer credit cards

A balance transfer credit card compiles your existing debt on a new credit card with a low rate. These cards typically offer a 0% introductory APR for the first six to 18 months. During this time, pay down as much of your debt as possible before the introductory period is over and the card reverts to a higher rate.

For example, let’s say you hold $8,000 of debt between two credit cards, each with a rate of 19%. If you only cover the interest for 12 months, you pay $1,520 in interest alone. By shifting your debt to a balance transfer credit card with a 12-month, 0% introductory APR, you could apply those funds directly to your principal.

Loan refinancing

If you’re struggling to pay down your debt, consider asking your provider about your loan refinancing options. Use this new loan with better terms and rates to pay off older debt. While your loan principal remains the same, a more competitive rate or term can help you better manage your debt in the long run.

Can I consolidate debt with bad credit?

Before you seek debt consolidation, consider your credit score. Debt consolidation solutions may only be worthwhile for those with credit scores high enough to secure a low rate.

If you’re trying to manage your debt and have a credit score of 600 or lower, check out lenders that offer bad-credit debt consolidation loans. You could also be eligible for a balance transfer card for low credit. While you may not qualify for a 0% introductory rate, you may get a more competitive rate to help you consolidate your debt.


Debt relief

Debt relief companies help you get out of debt by providing services like credit counseling, debt consolidation, debt negotiation and bankruptcy services. By enrolling in a debt relief program, financial experts help by renegotiating with your creditors.

Good for people with:

  • An inconsistent income who often miss payments and receive calls from debt collectors.
  • Debts more than $10,000
  • A debt-to-income ratio above 50%

While debt relief can help you get out of debt, it’s not for everyone. Before you sign up, consider the following drawbacks:

  • Program fees. Most debt relief companies charge a monthly program fee for their services, which may put further strain on your finances.
  • Credit score impact. Some debt relief companies advise you to stop paying your creditors while they negotiate on your behalf — a potentially risky move that could lower your credit score.
  • Taxable income. Any debt you settle for more than $600 is taxable, which could eat into potential savings.
  • Debt relief scams. There are a number of illegal debt relief scams that aim to take advantage of those in debt. Be wary of companies with undisclosed fees or upfront claims about how much you’ll save.

Consider debt relief if …

  • You have unsecured debt. Student loans and secured debt, like a home or car loan, typically aren’t eligible for debt relief.
  • Your debt is more than 50% of your annual income. If the debt you face is greater than half of your annual income, debt relief may be a worthwhile strategy.
  • You can’t pay your debt within five years. If there’s no way for you to eliminate your debt within five years on your own, consider debt relief.

Look at other options if …

  • You can pay your debt within five years. Try automatic savings apps, budgeting software and either the avalanche or snowball method before you consider debt relief.
  • You can settle the debt yourself. You could approach your creditors on your own and negotiate a more feasible repayment plan.
  • You qualify for debt consolidation. A debt consolidation loan or a 0% balance transfer card is a safer debt solution if you qualify.


Know when to consider bankruptcy

Bankruptcy is a legal process that eliminates some or all of your debt. Declaring bankruptcy harms your credit, showing up on credit checks for seven to 10 years. You could also risk losing your personal assets.

Filing for bankruptcy is a serious decision and should only be considered if:

  • Your debts are growing at an unmanageable rate. You’re working to pay down your debts but are having trouble just keeping up with the interest.
  • You’re creating debt to pay debt. You’re taking out new loans, lines of credit or credit cards to pay down your debt with no debt repayment plan in place.
  • You’re withdrawing from your 401(k). You’re pulling funds from your long-term retirement savings to keep up with your debt.

Bottom line

Being in debt is hard, but not the end of the world. There are plenty of ways to dig yourself free, including debt consolidation, debt relief and a number of do it yourself methods for the financially disciplined. Consider debt management options based on the amount and type of debt you have to find a solution that works for you.

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