How to get out of debt in 5 simple steps

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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.

According to research from The Pew Charitable Trusts, 80 percent of Americans have some form of 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.

However, 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.

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.

“Consumers may have multiple credit cards, and may be unsure what the total is across all of the accounts,” explains Andrea Woroch, consumer finance and money-saving expert and Marcus by Goldman Sachs® ambassador. “So being able to visualize what you owe across different accounts is an important first step.”

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. According to Woroch, there are three additional details you need to learn 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.

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.
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When it comes to choosing a strategy, the decision can be personal.

“I definitely recommend the avalanche method in terms of paying off your debt faster,” Woroch says. “But it’s something you want to approach on a case-to-case basis depending on what motivates you.”

On the other hand, 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.

“Now that you are trying to pay down debt, it should become a top priority,” Woroch says. “Because that debt may keep you from achieving your other life goals, like time with family or career changes.”

The first step is to cut back on spending if you can and figure out how to save additional money for payments.

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.

“Be sure to set small mini-goals within your larger debt repayment goals, and once you reach a goal, give yourself permission to celebrate the achievement,” Woroch says. “This can be as simple and inexpensive as a morning latte.”

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 percent 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 five 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.


Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors' opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when it’s posted.