Debt is a huge source of stress for many Americans. Total household debt has reached a record $17 trillion, and high-interest credit card debt is at $1.3 trillion, also a record high. Those big numbers break down to millions of Americans struggling to get out of debt. If you’re one of them, wondering how to get out of debt isn’t enough. You need a strategy.

Let’s explore how you can be among those who successfully work their way out of the debt trap.

1. Face Reality

The first step is to face facts. After all, you can’t deal with your current financial situation if you don’t know exactly what’s going on. So how do you deal with your finances head on?

Start by making a complete list of your debts. Write down how much you owe, to whom you owe it, your current interest rate, the due date and the amount you owe each month. List this information on a spreadsheet, a whiteboard, the back of a napkin, anywhere you can easily access the information. You need to know how much debt you’re truly dealing with, and on what terms.

☝️ It’s important to deal with concrete numbers as you’re getting out of debt. Don’t make the mistake of guessing what you owe. Write it down and don’t look back!

The second part of facing the facts is to look at your current income and spending habits. You need to know how much you’re bringing in and where your spending occurs each month. Spend time tracking every dollar, whether you put it on a credit card or pay cash.

This is a perfect time to get your spouse or partner involved, if you have one. It’s good for both of you to look at how much you owe and attack the debt together.

2. Develop a Plan for Getting Out of Debt

Now that you have a clear picture of your debts, it’s time to develop your plan for debt payoff.

There are several ways to pay off debt. There are many debates over which strategy is best, and the pros and cons of each method. Here is a snapshot of the most common payoff strategies.

Debt Snowball

The debt snowball method involves prioritizing your debts from smallest to largest. Pay off your smallest debt first, only paying the minimums on your other debts. Then proceed to the next smallest.

Successfully retiring one debt can give you the motivation you need to tackle the rest, as well as freeing up money to apply to your next debt.

The Avalanche

The debt avalanche method requires you to pay off the debt with the highest interest rate first. Focus on that and pay the minimum amount on all others. When you’ve paid off that debt, you focus on the debt with the next highest interest rate.

You’ll pay less money over time in interest, but it can take a while to see progress.

Debt Consolidation

If you have many debts and keeping track of the payments is an issue, consider debt consolidation. You can take out a loan, pay off multiple debts, and make a single monthly payment on the new loan. You can also transfer existing balances to a credit card with a 0% APR promotional period and pay off the debt before the promotion expires.

If you own a home you can use a home equity loan, a home equity line of credit or cash-out refinance to consolidate debt. All of these methods have advantages and disadvantages, so assess them carefully before making a choice!

Debt Relief

If your debts are out of control you may need to take more aggressive action, like credit counseling, a debt management plan, debt settlement, or even bankruptcy.

All of these methods have potential drawbacks, so read up on debt relief options before you commit to any of them.

💡 Tools like our Loan Payoff Calculator and Early Payoff Calculator can be useful when developing a plan for debt payoff.

The most important part of paying off debt is to take action. Whatever method you choose, developing a plan and putting it into action are critical to your success. 

3. Cut Your Spending

No one said getting out of debt would be easy. To get out of debt you have to be ready to make tough decisions and stick to them. You have to stop spending money you don’t have and apply all available resources to pay down your debt.

First and foremost, you must limit your use of credit cards. You can’t get out of debt if you keep piling on new debt. Don’t put anything on a card that you can’t pay off in full on or before the due date.

If you’re in the habit of using credit cards because you don’t have enough money to make essential purchases, work on building up an emergency fund.

👉 Experts recommend having three to six months worth of living expenses in your emergency fund, but even $500 or $1000 can help you avoid taking on more debt if things get tight.

🧮️ To figure out just how much you need to put away in emergency savings use our emergency fund calculator.

Common Ways to Cut Spending

There are multiple ways to decrease your spending, even if you feel your money is already tight and you don’t have any “wiggle room” in your budget. Consider these ways to cut spending.

  • Cancel the gym membership: Learn to work out at home or outside. 
  • Learn to coupon: Gone are the days of clipping coupons, although you can still find paper coupons if you want. It’s easy to find sites online to clip coupons for your trip to the grocery store.
  • Shop sales: Grocery stores typically put items on sale every 4-6 weeks When this happens it’s a smart idea to stock up. Focus on purchasing items when they’re on sale and avoid paying full price if possible.

💰 Consult our guide on the best days to shop to find out when is the best time to shop for particular items and when the biggest sales are.

  • Cut the cord: Entertainment can be a big-time money waster. Look at cutting out cable or satellite charges, even if it’s only temporary. The money you save each month should be put towards debt. You can add the service back when you’re out of debt.
  • Lower your bills: You may be paying too much for cable, internet, or your cell phone. Most people don’t know that you can call up your providers and try negotiating lower prices. Haggling over bills isn’t fun, and many people don’t want to do it. That’s why there are now companies that specialize in bill negotiation and can help you out for a small fee. 
  • Audit your subscriptions: A $5 per month charge here, a $10 monthly charge there. The monthly subscriptions add up quickly and before you know it, you’re sabotaging your spending. Audit your subscriptions and cut as many as possible. Remember, you can try them again once you’re out of debt.
  • Cut out the expensive coffee: If you have a Starbucks habit (or any other habit similar to this), then it’s time to learn to make coffee at home.
  • Find free ways to have fun: Getting out of debt doesn’t mean your life has to stop. There are plenty of free activities to enjoy while you focus your spending on paying down debt. Look for free events such as concerts or festivals. Cutting your spending on expensive hobbies and focusing on free activities can generate money that can help you pay off debts.

If you’re looking for more ways to cut spending, try tracking every expenditure, no matter how small. for a month or more. You’re likely to find significant spending in places you were barely aware of.

📘 Further reading: How Much Can You Save in a Year?

4. Add Income for Debt Payoff Acceleration

Once you’ve cut the unnecessary spending from your budget is, consider adding extra income. The more you earn, the faster you can pay off your debts. There are several creative ways to bring additional money into your monthly budget.

Sell Stuff

If you have junk lying around your house, it’s time to get rid of it. Not only does this declutter your living space, but the money you earn from selling unnecessary items can be put towards your debt. 

Try listing items on places such as Facebook Marketplace or Mercari, or have a massive yard sale. 

Take On a Side Gig

Taking on a side hustle or a gig is a fantastic way to add extra income to your bottom line. You won’t be alone while you’re doing it: currently 45% of Americans have some sort of side gig, with many of them reporting making over $500 a month[2]

If you’re not sure where to begin, start with your interests and hobbies. You may be able to monetize them. Look for opportunities that require very little investment or start-up costs. There are opportunities around every corner, you only have to put forth the effort to find a gig and get started. You could:

  • Sell items on eBay or Amazon
  • Become a driver (Uber, Lyft, UberEats, Shipt)
  • Offer freelance services (writing, web design, graphic design, photography)
  • Teach a local or online class
  • Add your profile to TaskRabbit
  • Become a consultant
  • Be a virtual assistant
  • Pet sitting or dog walking

These are only a few of the many ways to earn extra money. Your options for adding a second income are virtually endless.

⚠️ When you do earn extra income, use it to pay off debt instead of spending it.

Ask For a Raise

If you feel that you qualify for a raise in your current position and you have the facts to demonstrate your solid performance, then it may be time to ask for a raise. It can be uncomfortable, but the worst that could happen is your supervisor says no. If you do get a raise, use the additional income to pay off debt.

5. Create a Budget and Stick to It

A budget is the most important weapon you can have in your war on debt. A well-crafted budget balances your income and spending and makes sure you have money set aside for paying off those debts. If the thought of creating and using a budget evokes thoughts of endless spreadsheets, don’t worry. There are several budgeting methods available and you should take time to review which one works best for your situation. 

To make a budget method successful, you should:

  • Use technology to your advantage: Today’s digital world means you have your choice of budgeting tools right at your fingertips. Many apps are available to help you track your spending while you’re on the go.
  • Get your family involved: Let your kids know what’s going on. Get them involved and let them see you track the progress your family is making. Not only does this help you stay accountable, it shows your kids how to work towards a goal and make progress along the way.
  • Learn to say no: There are times you have to say “no” to your friends and family. It’s not fun and it won’t be easy, but it’s better than spending money you don’t have. The sacrifices you’re making now to get out of debt won’t last forever. There will be a time in the future when you can spend more on discretionary items, but while you’re paying off debt the word “no” needs to be a part of your vocabulary.

If you don’t get your budget right on the first try, don’t worry. Very few people do. See what went wrong, fine-tune the budget, and move on. Learn from your mistakes and use them to develop a budget and a budgeting system that work for you.

💡 Use our online Budget Calculator to quickly compare your current income to your spending.

Monthly Budget Spreadsheet Template

Free Monthly Budget Spreadsheet Template

  • This simple monthly budget template makes budgeting fun and exciting.
  • Easy-to-follow instructions so you can get started budgeting in no time.
  • Access your budget online from anywhere. See all features


    More Strategies for Getting Out of Debt

    If you are adopting a new lifestyle but you still find your money is in short supply, it may be necessary to consider big, life-altering changes. These aren’t popular ideas, but if you can make them work you may be able to get out of debt sooner than you expected.

    Find a New Job

    If you have the skills and experience to make more money than you’re making now, don’t be afraid to look for another job. This is a long-term solution, but it can be effective. Don’t be afraid to let your debt payoff motivate you to find a better job.

    Don’t wait on your new job to start making lifestyle changes and taking action against your debt. A new job with a higher income means you have more money to put towards debt payoff, but your payoff plan and actionable steps remain as the foundation. 

    Move to a Less Expensive Location

    It’s no secret that some cities are more expensive than others. If you have the option to move, it’s worth considering as a strategy to help you pay down your debt. If a new city has a lower cost of living a move could help you with your big goals.

    Another word of caution though: moving is expensive. A long-distance move costs an average of $4,950[3], so this should only be considered if you can move without going further into debt.

    Sell Your Car

    If you have less expensive options for transportation, or you’ve transitioned to working from home, it may be time to consider selling your car. Cars require more than just a car payment. You’ll also face maintenance costs, repairs, insurance, and parking costs. Going carless can give a big boost to your debt payment program, and once you clear your debts you can consider rewarding yourself with a well-chosen affordable vehicle.

    Final Thoughts on Getting Out of Debt

    Tackling your debt is a three-part process: Understand your debts, make a plan, and put your plan into action. It’s not as easy as it sounds. It takes hard work, persistence, and discipline. But with a solid plan and a willingness to make changes in your lifestyle, your goal of getting out of debt in 2022 can become a reality. The goal is worth the effort!

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