How to get out of debt

These 3 debt-clearing strategies can help you eliminate what you owe.

Even the biggest debts can be cleared with a solid plan — but there’s no one-size-fits-all approach. The debt relief strategy best suited to your situation depends on the amount and type of debt you carry.

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.


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.
  • Have debt that’s 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.
  • 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.
  • Can settle the debt yourself. You could approach your creditors on your own and negotiate a more feasible repayment plan.
  • Qualify for debt consolidation. A debt consolidation loan or a 0% balance transfer card is a safer debt solution if you qualify.


More 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. 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.
  4. Do a balance transfer. 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.
  5. 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.
  6. 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.
  7. 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.

Make weekly payments when possible

If you receive a weekly or biweekly paycheck, consider using this method. Take the monthly payment you want to put toward your debt, and divide it by four. Pay this amount each week. For example, if your monthly payment is $400, your weekly payment is $100.

The logic behind this is that most months have four weeks, while some have five. For the months that have five weeks, you are actually skipping one potential weekly payment when you pay $400 instead. With weekly payments, you can pay slightly more without even realizing it.

The following table shows how paying weekly helps you put $400 more toward your debt over a year.

PaymentsMonthlyWeekly
Monthly debt$400$100
Total yearly payments$4,800$5,200

Credit card stress

In a survey conducted by Finder.com in July 2020, credit card debt was reported to be the highest form of debt stress for Americans who admitted to being in debt. Approximately 32.14% of Americans claimed credit card debt gives them the most stress when compared to student loans, mortgage, medical debt, auto and personal loans.

Types of debtMost stressful types of debt according to those with debt
Credit card debt32.14%
Student loans21.39%
Mortgage21.15%
Medical debt12.43%
Auto loans8.48%
Personal loans4.42%

Source: https://www.finder.com/personal-loans/debt-consolidation-loans#american-debt-stress-statistics

When looking at age demographics, stress for other debts fluctuated as participants aged going up and down while credit card debt stress only increased with age. Around 46% of those aged 65 and older noted being the most stressed about credit card debt.

Age rangeMortgageAuto loansStudent loansMedical debtPersonal loansCredit card debt
18-24 year olds12.35%7.41%41.98%6.17%1.23%30.86%
25-34 year olds17.93%7.59%35.17%13.79%5.52%20.00%
35-44 year olds23.16%9.60%20.34%11.30%6.21%29.38%
45-54 year olds20.86%6.75%17.18%15.95%4.91%34.36%
55-64 year olds23.65%8.78%14.86%14.19%4.05%34.46%
65+ year olds25.20%10.57%6.50%9.76%2.44%45.53%
More women appeared to be stressed about credit card debt than men at 33.77% and 30.13% respectively.

How to avoid future credit card debt after getting clear

You’ve cleared your debt, or you’re in the process of doing so. That’s great news. Going forward, build the financial habits to keep you out of debt.

  • Identify why you first fell into debt. Was it overspending, high interest rates or a combination of the two? Try working with a budget or get a card with a lower interest rate.
  • Pay off your balance in full every month.
    By paying in full each billing cycle, you won’t pay interest. This is one of the key habits to build as you finish your college career and move into the next phase of adulthood.
  • Move your statement due date. By making sure your statement due date is just after payday, you’ll definitely have the funds to repay your credit card bill on time.
  • Keep your balance low.
    Most experts recommend keeping your credit card balance under 30% of your total credit limit at all times. This is a great idea because it keeps you from accumulating too much debt or exceeding your credit limit.
  • Stick to a budget.
    Design andstick to a budget. Also, consider reducing your credit limit — call your provider to do this — or leaving your card at home when you don’t need it.
  • Set up autopay.
    By setting up automatic payments, you’ll never miss a bill due date — excellent news for your credit score. Or consider setting up reminders to pay your bill in your calendar or on your phone.
  • Be very careful with balance transfers and cash advances.
    Outside of an intro-APR period, balance transfers start collecting interest immediately. The same goes for cash advances.

6 ways to change your “debt mindset”

It doesn’t matter how many times you wipe the slate clean: You probably won’t be able to stay out of debt unless you change the mindset that got you there in the first place. Use these tips to help change your perspective and get on track to beating debt once and for all.

  1. Take responsibility. When it comes to debt, unfortunately, fault doesn’t matter. If it’s in your name, it’s your responsibility. Accepting this can help you free up the mental space to do something about it.
  2. Think of debt as an obstacle, not a burden. A burden is something you always have to bear. An obstacle is something you can get around eventually. This shift in approach makes your debt seem a lot less intimidating and can help you stick to your goals. One way to do this would be to use a debt thermometer.
  3. Know your debt. Before coming up with a plan to eliminate your debt, learn everything you can about what type of debt you have. Why’s this important? Different types of debt come with different methods of dealing with it.
  4. Set a goal and have a strategy. Research your options to come up with a plan to repay your debts based on your income and credit score. It helps to have smaller goals to make it seem more manageable. Debt repayment apps can help you stay accountable.
  5. Stay focused by making it fun. Treat yourself to something nice like your favorite snack or a bubble bath each time you do something you don’t enjoy doing — even if it’s as small as checking on your bank and creditor balances.
  6. Practice gratitude. It’s perfectly normal to feel resentful when you’re making a real push to get out of debt. Practicing small gratitude exercises can help you stay positive and focused on your goals. If you find yourself feeling discouraged, remind yourself that getting out of debt is temporary.

5 sacrifices you can make to get out of debt

If you’re in debt and trying to avoid bankruptcy, there are sacrifices you can make to save up enough to pay more than your minimum monthly payments. For small debts, even an extra $50 a month can help you get the snowball rolling —but bigger debts will require bigger sacrifices.

  1. Your daily comforts. The little things you spend money on every month can add up, and cutting back can help you get out of debt. If you use the debt snowball method, even an extra $50 a month can help you get started.
  2. Your time. Take a part-time job on the weekends or after work to earn extra cash. Also, take some time to re-evaluate your finances. See if you can cut down on health insurance premiums by getting rid of excessive coverage, save on your car insurance by switching companies, get by with a cheaper cell phone plan or renegotiate your salary at work.
  3. Your possessions. If your TV is more of a decoration than anything else, consider selling it for extra cash. Same thing goes for that guitar you never learned to play, the ice cream maker you got as a wedding gift or the closet full of clothes you never wear.
  4. Your vehicle. A car comes with its own recurring expenses like gas, insurance and maintenance that you could pocket if you lived without one. Assuming that your car is in good shape, you could also consider selling it and using public transportation to get around.
  5. Your home. If you’re in a lot of debt and the first four steps aren’t enough to get out, it might be time to consider downsizing. If you rent, look into moving into a smaller apartment when your lease is up.

7 common lies creditors might tell you

  1. “I’m an attorney.” Lawyers are generally prohibited from giving advice to people they don’t represent. Ask for their contact information and tell them you’d like to have your own counsel talk to them. Real lawyers must stop talking to you at that point.
  2. “I work for the government — and can put you in jail.” The Fair Debt Collection Practice Act prevents debt collectors from threatening you with jail time. If you get a call from a debt collector who says you’re facing jail time, ask for their contact details and then call your state’s attorney general or Federal Trade Commission to report them.
  3. “I work for a credit reporting company.” Experian, Equifax and Transunion — the three main credit reporting bureaus — do not collect debts themselves. Instead, they monitor your credit and report your repayment history to others.
  4. “You owe much more than that.” Debt collectors can sometimes lie about how much you owe in an attempt to get you to settle for an amount that equals or exceeds what you actually owe. Misrepresenting the amount you owe is illegal.
  5. “You just have to sign some paperwork.” Debt collectors can attempt to intimidate you into paying with the help of paperwork designed to trap you. Legally, debt collectors are prohibited from misrepresenting documentation they send to you. If you’re unsure whether a document is legit, seek the help of a lawyer.
  6. “I’m going to garnish your wages or seize your property.” If you don’t pay a debt, it’s possible that a debt collector will seek a court’s approval to collect it from your paycheck or property. But that requires you to receive a summons to appear in court first.
  7. “I’m going to take your Social Security payments.” Most Social Security, veterans’, civil service, federal retirement and disability benefits, including military annuities and FEMA assistance, are exempt from garnishment — or involuntary deductions — by a debt collector.

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.

Frequently asked questions

What should I do if I can’t pay my gas, water or electric bill?

Don’t apply for a payday loan if you’re already having trouble managing your debt. There are government programs to help those who are struggling financially.

Can you go to jail for not paying off debt?

Two forms of debt could put you at risk of prosecution: Tax evasion and failure to pay child support. Consumer debt collectors — those who deal with credit card, loan or medical bill debt — can’t arrest you for owing money but can sue you for payment.

Are there grants to get out of debt?

While you won’t find a government program that offers debt relief grants, there are licensed government-approved credit counseling agencies that can help you manage your debt.

How does a debt relief program affect your credit?

Debt settlement programs can negatively impact your credit score if you’re advised to stop paying your creditors while the company negotiates your debt. Any missed payments on what you owe can damage your credit, so check that the debt settlement company you select is reputable, licensed and maintains a strong Better Business Bureau reputation.

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