How to Get Out of Debt: A Step-by-Step Guide

Find Out How Much Debt You Owe

You can’t develop a debt payment strategy until you know exactly what you’re up against.Write down the debts you have, how much you owe on each, the interest rate, and the minimum payment.

If you aren’t sure about the interest rate, take the time to open your accounts and find the exact number. High-interest rate debt is a bigger drag on your success than low-interest debt, so you need to know which is which.

Choose Your Approach

Once you know exactly how much you owe, it’s time to put a plan together for how you’re going to get out of debt.

Throwing money at a different debt every month, without tracking your progress, is a surefire way for burnout. You’ll feel like you’re spinning your wheels and give up too soon.

The best way to pay down debt is to focus on one piece of debt at a time until that one debt is entirely paid off. In the meantime, make only minimum payments on the other debts.

Make Some Big Changes

While small, day-to-day changes matter, a few big changes can fast track you to getting out of debt. Consider these ideas and decide whether the expense they represent is truly worth it to you.

Get Rid of Your Credit Cards

Create a Monthly Budget

Want to know how much you can put towards debt each month? You’re going to need a budget.

A reasonable budget helps you understand where your money is going. It alerts you to where cash is leaking out to things that don’t really matter to you. And it clues you in on how much you can afford for the things you do want.

By building a budget thoughtfully and allowing yourself some flexibility, you can reduce money stress by knowing there is always money in the bank for the things you need.

Allocate remaining money between debt paydown and quality of life expenses.

The money that is leftover from your income after completing steps 2 through 4 is what you have to contribute towards your goals and fun. In addition to debt paydown, you may want to allow for dinners out, gym memberships, gifts, etc. Divide the money in the way that best works for you.

Improve Your Spending Habits

Embracing a frugal mindset will reduce your spending and allow you to pursue your goals more effectively. Not sure where to cut? Start with the big stuff.

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