20 ways to get out of debt

A couple seated on a sofa use a laptop to read about how to get out of debt.Image: A couple seated on a sofa use a laptop to read about how to get out of debt.

In a Nutshell

Getting out of debt can help you achieve other financial goals. There are a number of strategies, including the debt avalanche method and snowball method. You may also want to consider a debt consolidation loan or balance transfer credit card.
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Between student loans, credit card payments, mortgage and car payments, debt can feel overwhelming.

But the earlier you get started with a strategic plan to get out of debt, the better. If you’re not sure where to start paying off your debt, it’s helpful to first get organized and figure out what you owe.

If you can only fit minimum payments into your budget, start there before gradually working your way up. While there’s no quick fix to get out of debt, sticking to a repayment plan can help by providing insight into your financial situation. 

1. Get organized

If you have several accounts that make up your debt, start by making a list to calculate what exactly you owe. Collect the following debt repayment information for each account:

  • Creditor
  • Balance
  • Interest rate or APR
  • Monthly amount due
  • Payment due date

You can find this information through your online account or request it directly from your creditor.

2. Prioritize your debt

Paying off your debt can be a long journey, but the sooner you get started, the better off you’ll be. Everything you owe — personal loans, credit cards, auto loans or student loans — should be included. Decide what is most important to you to pay off first.

Consider taking out a debt consolidation loan so you’re only paying one monthly payment. You may qualify for a lower interest rate, saving you money in the long run.

3. Lower your interest rate

Some creditors or lenders may lower your interest rate if you are in good standing, have paid on time or missed very few payments. You also may be able to take out a balance transfer card that could lower your rate.

Another option to consider: refinancing your auto loans, mortgage, student loans or personal loans to help you repay your debt faster at a lower interest rate.

4. Make a repayment plan

There are several strategies to repay your debt.

  • Debt avalanche method: This method recommends starting by paying the debt that has the highest interest rate first and work your way down from there. You’ll save money in the long run since less interest will accrue over time.
  • Debt snowball method: This strategy recommends making minimum monthly payments on all of your accounts, then using what you have left to pay your debt with the lowest balance. Once you pay off your smallest debt, you should put that previous monthly payment and what you have left toward your next lowest debt balance.
  • Snowflake method: This debt repayment method is when you make small payments whenever you have extra money. You can also combine this method with either of the first two. For example, if you receive a bonus at work, you could put it toward your debt.

You should choose whichever method motivates you and works best for your situation. If you are motivated by small wins, the snowball method is a good option. As long as you are making progress toward your end goal, you can shift between different methods over time.

5. Stick to a budget

Try to cut expenses as much as possible when working to pay off your debt. A helpful way to keep your spending in check is to use a 50/30/20 budget rule.

  • 50% of your income: Put this toward the needs in life — rent, food, transportation, utilities, or insurance.
  • 30% of your income: Put this amount toward your personal expenses like your phone bill or a weekend trip with friends. You may want to scale back your wants to put more towards your debt.
  • 20% of your income: Dedicate at least 20% of your income toward savings and, most importantly, your debt payments that are over the minimum required monthly payments. Start as early as you can and stay consistent.

6. Track your progress

Debt repayment and tracking apps turn your numbers into a simple automated process. Consider using a budgeting tool to help you track the progress you’ve made, motivate you when you have victories and evaluate how far you have to go to be debt-free.

By setting up goals or micro wins, you can feel accomplished with every step you take toward financial freedom.

7. Set up an emergency fund

To stay on track with your repayment plan, allocate an emergency fund that you can tap into for unexpected expenses. Plan ahead to have at least three to six months’ worth of living expenses saved in your fund.

To set up an emergency fund, follow these steps:

  • Look for ways to save The difference between your general savings account and your emergency fund is that one is for emergencies only. Use our budget calculator to find ways to save each month to start building your emergency fund.
  • Reduce your take home pay — Reallocating your funds by maxing out your 401(k) and automating 20% of your savings into a separate account forces you to stick to your plan.
  • Stick to your plan — Keep yourself accountable and remind yourself why you’ve decided to work on your debt.

Credit Karma Money Save™ offers a high-yield savings rate, which can be a good tool to help you stay on track with your savings goals.

More ideas to get out of debt

Think of ways you can save money throughout the month to put toward your debt payments. These can be changes in habits or small swaps that will start to add up in savings.

  1. Meal prepping — Making a meal plan that you can follow with a grocery budget can help you save on the costs of eating out while taking the stress out of making meals at home.
  2. Cancel the gym membership If you can’t remember the last time you went to the gym, it might be time to cancel your membership and use that leftover money to go toward your debts.
  3. Take out a debt consolidation loan Taking out a personal loan for debt consolidation can be a good way to refinance high-interest credit card debt, lowering your monthly payments. 
  4. Make passive income Finding a passive income opportunity could be a great way to make extra money and pay off debts faster.
  5. Eliminate unnecessary spending Monthly subscriptions add up, so take a look at what you’re paying for each month and cut costs where you can. If you don’t ever use your cable, streaming services or other memberships, consider canceling them and putting those funds toward paying off debt.
  6. Look for deals — Save where you can by taking advantage of weekly ads or coupons on the items you already buy every month.
  7. Use the envelope budgeting system Envelope budgeting splits your paycheck into separate envelopes based on a category and a budget. This method can help you avoid overspending in one area and can be a great tactic to save money to pay off debt.
  8. Try the 30-day rule — Before making a large purchase, think about it for 30 days first. You could avoid making impulsive purchases that take away from your savings.
  9. Switch your phone plan Find ways you can cut spending to put those funds toward paying off debt. The unlimited data you might be paying for on your phone plan might not be necessary.
  10. Take advantage of hand-me-downs When your kids seem to outgrow clothes faster than you can buy new ones, consider accepting hand-me-downs from friends and family. They will be happy to part with clothes they no longer wear, and it will help you save where you can.
  11. Ride share when possible — Save on gas and car maintenance by carpooling to work or school. The money you save can go straight toward getting out of debt.
  12. Cut your energy bill Some utility companies offer free energy assessments of your home, so you can find ways to save money on energy costs. Block out sunlight on hot days, reduce water usage by installing low-flow shower heads, avoid running the air conditioning too long, and lower the temperature on your water heater to save money on your energy bills each month.
  13. Find free, fun activities — Save on entertainment by looking for free events in your community, taking your kids to the park, going to the lake or taking a walk on the beach to avoid spending money when you can.

What’s next: Why it’s important to get out of debt

Keep the momentum as you work toward paying off your debt. With less debt, your debt-to-income (DTI) ratio will look better to lenders, which helps if you’re looking to take out an auto loan or mortgage to buy a house.

Calculate your DTI to figure out where you fall, and see how you can reduce your ratio number. To do this, you’ll total your monthly debt payments and divide that amount by your gross monthly income — the money you make before taxes and deductions each month.

A large amount of debt can also affect your credit scores. This may influence what vehicle you drive, your ability to get a mortgage, employment opportunities and other monthly bills.

Lenders usually evaluate your credit when you apply to borrow money, so it’s important to maintain healthy credit.