Tips for Getting Out of Debt

When you’re deeply in debt, it can feel like drowning. Whenever you pay one bill, another three show up in the mail. Once you finally pay off a loan, an unexpected emergency forces you to take out another.

When you start feeling this way, it’s time to learn how to swim.

Getting out of debt certainly isn’t easy, but the most effective strategies are relatively simple.

The key to debt reduction is consistency, which can be hard to maintain over the course of months and years. That's why you need a clear map of where you're going, and a strong sense of why you're doing it all in the first place.

If you’re finally ready to get out of debt, we’re here to help you start the process. Here's our top tips for getting out of debt.

In this article

• How to pick a debt payoff mindset
• Basic tips to pay off debt
• Other ways to pay off debt
• How to stay motivated paying off debt
• Should you save money or pay off debt?

Pick a debt payoff mindset

Don’t know how to get out of debt fast and easy? There are two basic debt repayment methods you can utilize.

Here’s how they work:

Debt avalanche method

The debt avalanche method involves paying extra money toward the debt with the highest interest rate. Once you pay off that debt, you'll move on to the next highest debt payment. This will save you the most on total interest.

Debt snowball method

The debt snowball method was popularized by personal finance expert Dave Ramsey. Instead of paying off the loan or credit card with the highest interest rate, you focus on the smallest balance first.

Once you pay off that balance, you add that monthly payment to the next smallest debt balance. This creates a snowball effect and allows you to reduce your credit card debt over time.

The benefit to the debt snowball method is that individual debts are paid off faster, which can provide a greater motivational boost than with the avalanche method. Research from Harvard found that those who used the snowball method and concentrated on one loan at a time paid off their debt faster.

Deciding between the debt avalanche and the snowball method is a personal choice and how you want to create your debt management strategy. If motivation isn't a factor and you would rather save more on interest, choose the avalanche method. If you need more motivation, then stick to the snowball strategy for your debt management plan.

We’ll focus more on how to stay motivated to pay off debt at the end of this article. Feel free to skip ahead or read on for practical ways to pay down your debt.

Basic tips to pay off debt

Paying off debt can be a long process. Here are the first things you should do to get out of debt:

Set up a budget

A budget is the best way to track your expenses and find extra money to throw at your debt.

To start a budget, open your bank and credit card statements for the past couple months. Write down the categories that you see.

These may include:

• Housing
• Transportation
• Utilities
• Cell phone
• Groceries
• Entertainment
• Childcare
• Health insurance
• Life and disability insurance
• Pets
• Charity and gifts
• Savings
• Miscellaneous
• Etc.

Write down approximately how much you spend every month in each category. Then, go through those transactions and decide how much less you can spend on variable expenses like groceries, entertainment and gifts.

For example, if you spend $200 a month on new clothes, see if you can decrease it to $100.

Try cutting back on discretionary expenses like eating out and entertainment. Remember, this is only a temporary measure that will help you pay off debt. It doesn’t have to be a permanent life change.

Go through your subscription services like Netflix, Spotify and Amazon Prime and see if any can be cut. Take the extra money and apply it to your debt.

You can create a budget and track your expenses with a simple Excel spreadsheet, an app like Mint or an online spreadsheet system like Tiller. It doesn’t matter what kind of system you set up, but you should try to choose one that’s easy for you to use.

Check out this list of apps that could help you save money.

If you’ve never budgeted before, it may take a few months before you get the hang of it. Don’t beat yourself up if you go over - try to be patient and have a little grace for yourself.

Make it harder to spend money

The key to removing a bad habit is to make it harder.

If you’re trying to spend less money, remove your credit card information from online stores like Amazon and your browser’s autofill. You may find yourself buying fewer items if you have to input the credit card manually.

You can also try keeping your wallet away from the computer so you have to physically get up to find it.

Add windfalls to your debt

When you land an unexpected windfall, like a tax refund or a bonus at work, apply most or all of it to your loans. You can allow yourself to spend a percentage of it on something fun, but put the majority toward debt payoff.

If you get paid every two weeks, then you’ll get three paychecks in one month twice a year. You can add these “extra” paychecks directly to your debt as well.

Look for unclaimed money

Unclaimed money is when you’re legally owed money that’s being held for you through a government entity. This may include unpaid wages from a previous employer, a tax refund check that was never delivered or money that a private business owes you.

There are several sites you can search through to claim your money. You can find a list of them here. Make sure to search the databases thoroughly, especially if you’ve lived and worked in multiple states. You never know where you might find some extra cash.

Sell things you don’t need

If the popularity of Marie Kondo taught us anything, it’s that most of us have dozens of items in our homes that we don’t need. Instead of donating these items, try reselling them and adding the proceeds to your loans.

Here are some places to sell your things:

• Poshmark - Good for women’s, men’s and children’s clothes and accessories
• eBay - Great for collectibles and electronics
• Craigslist - Good for heavy or large items like furniture
• Facebook Marketplace - Good for collectibles, electronics, and heavy or large items like furniture

No matter what site you use, take high-quality photos and write an honest, detailed description. Research prices before you list an item so you don’t accidentally price it too low. Add some buffer room so you’re able to negotiate.

Get a side hustle or part-time job

Earning more money is one of the best ways to pay off debt. You can always find a traditional part-time job, working at a retail store or delivering pizzas. Side hustles like Uber and Postmates are also popular, but only if you have a reliable car.

Here’s a list of 50+ other side hustles you could try too.

If you have a marketable skill, try channeling that into a part-time gig. It will likely pay more than any other kind of side job you could find. For example, if you’re a talented photographer, offer to take senior portraits or wedding photos on the weekends. Charge a low rate at first to build a client base quickly and gradually raise your prices.

Advertise your services on your own social media accounts, as well as on your neighborhood Facebook groups or NextDoor. Connect with others in your field to discuss pricing and other strategies.

Negotiate bills

You may find some savings by negotiating your car insurance, cell phone, gym membership or internet bill. Sit down and make a plan to call those providers and ask for a lower rate. Talk about how you’ve been a loyal customer and mention that you’ve seen lower prices at a competitor.

If your credit improved recently, you may even qualify for lower car insurance rates based solely on your credit improvement in some states.

Those with low incomes may even qualify for significantly reduced internet and utility bills. Some gyms even have sliding scale rates for those below a certain income.

Don’t be afraid to ask about these programs if you qualify.

Other ways to pay off debt

Consolidate debt

Debt consolidation means paying off multiple loans, lines of credit or credit cards with one loan. This process simplifies payments because there’s only one monthly payment to make instead of several.

It can also be a good way to save money on interest. If you take out a personal loan at 8% interest and pay off several credit cards with 15% APR, you could pay less interest overall.

Plus, consolidating credit card debt may also speed up the debt repayment process. Credit cards are revolving debt, which means there’s no fixed payoff date. All you have to do is make the minimum payment.

But when you choose to consolidate credit cards with a personal loan, you will then have a set payoff deadline. This can be extremely helpful for those stuck in a debt cycle.

Negotiate with your credit card company

If you have credit card debt, one little-known strategy is to call your credit card company and ask for a lower interest rate. Remind them how you’ve been a responsible customer and how much you’d appreciate a better rate.

Some providers will offer a permanent reduction, but others will only temporarily reduce your rate. If it’s the latter, set a reminder in your calendar to call again before the lower interest rate expires to ask for an extension.

Some providers might not reduce your interest rate, but it never hurts to ask.

Transfer credit card debt

Some credit cards offer 0% APR on balance transfers. If you have an outstanding balance on a card, try opening a new one with 0% APR. Most of these cards have 0% APR between 12 to 18 months. During that time, you won’t be charged any interest on the balance.

Let’s say you have a $5,000 balance on a card with 15% APR. If you transfer that to a card with 0% APR for 18 months, you’ll save $951.54 total in interest.

You’ll have to pay a balance transfer fee, usually around 3%. That equals $150 on a $5,000 balance. Make sure that you repay the balance on the new card before the 0% APR offer ends, or you may end up paying more with interest and balance transfer fees.

Set up a debt payment plan for medical bills

If you’re already in debt, getting a huge medical bill can be an unexpected emergency. Before paying the bill in full, try to negotiate with the hospital or doctor’s office.

Many billing departments offer discounts to those who earn below a certain threshold. They may ask to see a tax return or pay stub as proof of income.

Others will let you create a payment plan to make the payments more manageable. For example, if you owe $500 for an ultrasound, you may be able to set up a 12-month payment plan for $41.67 a month.

Medical facilities usually don’t charge interest fees on payment plans, so it’s best to spread these payments out and focus on loans and credit cards with interest fees.

If you only have medical debt and can afford to pay it off in one fell swoop, talk to the billing department. Some will offer you a slight discount if you pay immediately. This is a negotiation process, so start by asking for 50% off. If they decline, ask for the best they can do.

Refinance high-interest loans

You’ll save the most money on interest by refinancing high-interest loans if you qualify for better rates. To do this, make a list of all your loans and sort them by interest rate.

It may be difficult to refinance more than one loan at a time, so choose the one with a relatively high balance and high interest rate.

For example, if your car loan has a 10% interest rate and a $25,000 balance, it’s best to refinance that instead of a personal loan with a 5% interest rate and a $2,500 balance. But only if your credit history and financial situation is good enough to qualify for lower interest rates.

Use a refinance calculator to determine which loan to refinance first to save the most amount of money.

Look into student loan forgiveness options

Some borrowers with federal student loans may be eligible for Public Service Loan Forgiveness (PSLF), which forgives any remaining debt balance after 10 years’ worth of payments.

To qualify, borrowers must work for the government or a nonprofit. They must also have loans through the Direct Loan Program, which excludes Federal Family Education Loans (FFEL) and Perkins loans. If you do have FFEL or Perkins loans, you can consolidate them into a Direct Consolidation Loan to make them eligible for PSLF.

If you think you might be eligible for PSLF, start by filling out an employment verification form, which you file with the Department of Education. This lets them verify that both your loans and employer qualify for PSLF.

When you decide to work toward PSLF, you can switch to an income-based repayment plan. These typically have lower monthly payments than the standard plan, so you may save hundreds every month.

Those who successfully have their loan balance forgiven through PSLF do not have to pay taxes on the forgiven amount.

Consider refinancing student loans

If you have private student loans, see if you’re eligible to refinance them to a lower interest rate. Reputable refinance companies include SoFi, Commonbond and LendKey.

If you owe $30,000 with 8% interest and refinance to a 5% rate, you’ll save $46 a month and $5,494 in interest over the life of the loan.

Refinancing federal loans is more difficult. The federal government has no refinancing program, so the only option is to refinance a federal loan into a private loan. This requires giving up benefits like deferment, forbearance and income-based repayment options.

Before refinancing federal loans, consider how stable your job is and how much of an emergency fund you have. Refinancing may be a bad decision if you work in a field with constant layoffs, or you have little savings.

But if your career is stable and you have six month’s worth of expenses saved for emergencies, then refinancing to a lower interest rate may make sense.

Set up autopay on your student loans

If you have federal student loans, you could receive a 0.25% interest deduction when you set up automatic payments. Signing up for autopay helps protect you against missing payments and incurring a late fee.

Establishing a perfect payment history could also improve your credit score over time so you can qualify for lower-interest loans.

How to stay motivated paying off debt

Trying to pay off debt is like starting a new diet. In the beginning, it may seem new and exciting. The first few pounds come off easily, and you love seeing the numbers on the scale go down.

Then you hit a plateau and lose your motivation.

Paying off debt is similar. Sticking to a budget for the long haul is a difficult process, so it helps to find creative ways to stay motivated.

Like these three...

Celebrate mini wins

Many borrowers treat themselves to a vacation when they pay off a loan or credit card, but don’t forget to enjoy the small victories. For example, for every $1,000 you pay off, reward yourself with a small goodie like a trip to the movies or dinner at your favorite restaurant.

Having a prize in place makes it easier to keep going, because you know there will be something waiting for you at the finish line.

Try to keep the reward reasonable and in line with your budget, like $50 or less. You don’t want to blow your budget and make it harder to keep paying off your debt.

Keep your goals visible

Print out a visual aid from Debt Free Charts and keep it in your wallet, on your fridge or near your computer. You can find charts for specific loans, debt payoff, building savings, or use a generic one.

Every time you color in a portion of your debt, allow yourself to feel proud and let the moment sink in.

Have an accountability partner

It’s hard to change your financial lifestyle by yourself, but it’s much easier with an accountability partner. This can be a friend, coworker or anyone else with a similar debt payoff goal.

Your accountability partner will be there to keep you in line when you want to go over budget and let you vent when you’re frustrated.

This should be someone who will be honest with you when you’re overspending or cheating on your goals. Don’t pick an accountability partner who will let you off the hook easily. You should also find a regular time to meet and go over your wins and setbacks.

Should I save money or pay off debt?

When you’re paying off lots of debt, it can be easy to get tunnel vision. But you still have to balance saving money while paying off debt.

Start by building a three-month emergency fund, which will be used for things like:

• Job loss
• Surprise medical bills or vet bills
• Car repairs
• Home expenses
• Etc.

Having an emergency fund in place helps protect you from having to borrow more money. When you need money in a hurry, you’re more likely to resort to high-interest loans like payday loans or credit cards.

A basic emergency fund means you can pay for the items with cash, or at least reduce the amount of money you have to borrow.

If you have a 401(k) with an employer, save enough to your retirement account to receive any matching contributions from your company. These matching contributions are like free money and should always be utilized, even if it means delaying your debt payoff.

Bottom line if you’re trying to pay off debt?

1. Pick a debt payoff mindset. Don’t worry, you can always change it later.
2. Take practical steps to cut back expenses and grow your income to free up more money to pay towards debt.
3. Get support and find resources to help you stay motivated to pay off your debt.
4. Balance debt payoff with taking care of other aspects of your financial health, like saving money for emergencies or retirement.

About the author

Zina Kumok is a Financial Health Counselor and Credit Counselor certified by the National Association of Certified Credit Counselors who writes extensively about personal finance. See Zina on Twitter.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.