How to get out of debt in 5 simple steps

Smiling young woman resolved to pay off debtImage: Smiling young woman resolved to pay off debt

In a Nutshell

Debt can feel overwhelming, especially when it's spread out across different accounts or credit cards. But there are simple strategies you can follow to get out of debt.
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There are a lot of reasons debt occurs — unforeseen expenses, medical emergencies, job loss and more.

Regardless of the reason you might be in debt, rest assured that you’re not alone. Millions of consumers struggle with debt. So whether your debt is the result of an unexpected emergency or accidental overspending, there’s no need to feel ashamed about what you owe.

But to avoid paying excessive interest rates, late fees and falling behind on payments, it can be a good idea to learn how to get out of debt and create an actionable plan to meet your goals. A debt repayment calculator can help you figure out how long it would take to get out of debt.

Here are five simple steps you can follow to jump-start your debt repayment journey.


  1. Assess the amount of debt you owe
  2. Learn the details
  3. Make a repayment plan
  4. Keep spending in check
  5. Fight fatigue by celebrating small wins

1. Assess the amount of debt you owe

Even though it may seem daunting, it’s important to understand the total amount of debt you owe. Having a clear understanding of the numbers will empower you to make a repayment plan that actually works.

This can be as simple as compiling a spreadsheet in Excel or linking your credit cards to a free app that will compile the information on your behalf.

2. Learn the details

After you’ve determined the total amount you owe, it’s time to dig a little deeper and read the fine print. Here are additional details to collect about each debt:

  • Due date for each payment
  • Minimum monthly payment
  • Interest rate

It’s important to know the details because they will ultimately help you determine the best repayment plan.

A minimum monthly payment is the smallest amount of money due each month to keep your credit card account in good standing. Most banks determine the minimum payment by calculating 1% of the total balance owed.

3. Make a repayment plan

Once you understand the big picture, it’s time to create a repayment plan. There are two main debt repayment strategies.

  • Debt snowball: Coined by personal finance expert Dave Ramsey, the debt snowball method focuses on paying off the smallest debt first, while maintaining minimum monthly payments on all other debts. As each debt is paid off, the money that was used for the previous debt is “snowballed” and used to pay the next smallest debt. This process is repeated until all debts are gone. Even though this strategy might not save you as much money on interest fees, some people find it motivating to pay off one account at a time.
  • Debt avalanche: Instead of focusing on the debt with the smallest balance, the debt avalanche focuses on paying off the debt with the highest interest rate first, while paying minimum monthly payments on all other debts. After that, consumers focus on the debt with the second-highest interest rate and repeat the process until all debts are gone.
How a balance transfer can help you pay down debt

A research study from Northwestern University has shown that consumers who tackle small balances first are more likely to eliminate their overall debt, despite the fact that it doesn’t make the most economic sense.

So the best thing for you to do is develop a plan that plays to your strengths and motivations — even if your plan differs from someone else’s. As long as you’ve found a way to consistently pay down your debt, you’re golden.

4. Keep spending in check

Now that you have a plan to get out of debt, it’s time to focus on the other part of the equation: spending.

When it comes to paying off debt, the first step is to create a budget and prioritize your payment plan.

When you’re first getting started with budgeting, a simple spreadsheet can help make the transition go smoothly. The Federal Trade Commission provides a downloadable budget template with six simple spending categories: housing, food, transportation, health, personal and family, finance and “other.”

5. Fight fatigue by celebrating small wins

Whether you’ve paid off your first $1,000 of debt or have made five consistent payments, it’s important to celebrate your debt repayment victories with little luxuries.

We recommend incorporating these small celebrations into your repayment plan. As you hit your bigger goals, how will you celebrate?

Plan your milestone celebrations ahead of time and write them down in your plan. That way you’ll constantly be working toward a fun, tangible and positive goal. Then, instead of simply looking forward to paying down that next $500, you can also get excited about treating yourself to a night out with friends after you reach a milestone, or getting a milkshake at your favorite restaurant.


Why should you pay off debt?

Debt, while it can have negative connotations, isn’t always bad. Consistently paying off debts on time can have a positive impact on your credit scores.

However, debt — especially large amounts of it — can be a financial burden. Even if you can meet your minimum payments, interest rates add up over time and can become financially taxing.

The Federal Trade Commission provides the following example:

“Suppose when you’re 18, you charge $1,500 worth of clothes and DVDs on a credit card with a 19% interest rate.

“If you repay only the minimum amount each month, … You’ll be more than 26 years old by the time you pay off the debt. That’s 106 payments, and you will have paid more than $889 extra in interest.”

In other words, interest rates are the “price” of the money you borrow. In the example above, the “price” of the loan was $889.

To avoid paying extra interest, it can be a good idea for everyone to create a debt repayment plan by following the steps we’ve laid out above.


Bottom line

Getting out of debt is a journey and the most important decision you can make is to start the process. Take stock of your debts, learn about the details and create a plan. But once you’ve started the process, don’t forget to celebrate along the way. After all, with every payment you make, you’re one step closer to debt freedom.


About the author: Taylor Milam-Samuel is a personal finance writer who is passionate about breaking down money barriers. She enjoys helping millennials become intentional about money and spending. Taylor holds a bachelor’s degree in En… Read more.