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How to get out of debt

Your guide to becoming debt-free

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As the cost of living increases, our debt load can make it harder to make ends meet. You are not alone in your debt battle; it’s a nationwide issue, with total credit card balances increasing $61 billion in just 2022’s fourth quarter, according to the Federal Reserve Bank of New York.

“Levels of concern about debt are going to vary from person to person, due to income, the amount of debt and financial obligations,” said Tana Williams, Ohio-based personal finance blogger at Debt Free Forties. “However, if you're living paycheck-to-paycheck and are struggling to make all of your payments, then it's time to worry.”

While you can’t change inflation rates, you can take control of your debt. Paying off debt can help you feel like you have more breathing room in your finances. It won’t be easy, but it will be worth it.

Key insights

  • Closing a credit card account can ding your credit score; if you need help controlling your spending, try freezing your card instead.
  • Both the debt snowball and debt avalanche methods can help you see fast progress with debt repayment.
  • Consolidating your debt to a lower-interest loan can help you save money and pay off your debt faster.

Figure out how much debt you have

Before you can get started with any debt relief program, you need to rip the bandage off and figure out how much debt you have accumulated.

“How much you owe overall and your monthly debt payments are important numbers to know,” said Williams, who has also paid off $27,000 of debt in 17 months. “It's easy to avoid facing the total amount owed, but knowing that total is key to helping you tackle it.”

Start by listing out each creditor and lender and how much you owe. You can also pull your free credit report to see how much you owe and how it is affecting your credit score.

Once you know the exact numbers, you can organize your debt into two categories: revolving debts and installment debts.

  • Revolving debts: Balances that you carry month over month, like a credit card or a home equity line of credit (HELOC), are considered revolving debts. These debts can come with a variable interest rate that changes over time and can make it feel like you are in an unending cycle of debt. Tackle these debts first.
  • Installment debts: Debts that you make regular payments toward every month, like a mortgage, car payment or student loan, are installment debts. The amount you’ve borrowed doesn’t change over time. Tackle these debts after your revolving debts.

Prioritize your debts by listing out your revolving debts first, followed by your installments debts. Your mortgage should be at the bottom of your list since it is better to tackle your other debts first.

» MORE: How to get out of credit card debt

Stop adding to your debt load

If you want to see real progress with your debt repayment goals, you need to stop adding to your debt load. But do not cancel any credit cards — this will do more damage to your credit score than good. Instead, try the following solutions to avoid the temptation of debt:

  • Unlink all credit cards and accounts from online shopping: Make it as inconvenient as possible to buy something online so that you have to pause and think about spending.
  • Freeze your credit card: Many credit card companies and banks offer the option to freeze or pause your card through a mobile app. If your credit card comes with this feature, try it out to remind yourself not to swipe with that card.
  • Rethink your subscriptions: Go through all your monthly subscriptions, whether it be your favorite streaming service or a monthly box of goodies. Are there any subscriptions you forgot about? Can you live without a service for a month or two? This is a fast way to free up room in your budget.
  • Take cash to the store: Paying in cash is old-school and inconvenient, but you are less likely to splurge on a container of ice cream if you need to stick to a strict cash-only grocery budget.

Credit cards make life easy, which is why so many of us fall into the credit card debt trap. The key to making progress on debt is to remove the convenience and ease of spending.

Pick a debt repayment plan

There are several different debt repayment strategies and while financial experts have long argued over the debt snowball versus debt avalanche plans, the best method is the one that works for you.

In all three of the following strategies, you will pay the minimum payment on all debts and devote any extra funds towards a specific debt in hopes to pay it off faster.

  • The debt snowball method has you devote extra money to the smallest debts first. This helps you gain traction by eliminating one small debt at a time.
  • The debt avalanche method pours all of your extra funds toward the debts with the highest interest rates first. This allows you to save more money overall on interest repayment.
  • The debt blizzard method is a combination of both plans; you pay off the smallest debt first then work on the highest interest debts next.

The goal is to pay off all of your debts, except your mortgage, or at least repay enough of your debts so you have financial freedom in your budget again.

Many financial experts recommend the 50/30/20 budget rule — allocating 50% of your budget for needs, 30% for wants and 20% for savings. When you get close to these figures and are able to regularly set savings aside rather than repay debt, you know that you have hit a comfortable debt limit.

Consolidate your debt

Debt consolidation is a way to refinance all your current debts by combining balances into a single affordable monthly payment with a lower interest rate. Debt consolidation loan companies charge a fee for their services, but you can do it yourself with one of the following options:

  • Balance transfer credit card: If you can transfer credit card debts to a promotional 0% annual percentage rate (APR) card, you will be able to pay $0 in interest for the special time period (typically six to 18 months). Note that this method does come with a balance transfer fee and if you don’t repay your debt during the promotional period, you will have to pay accrued interest.
  • Personal loan for debt consolidation: Many lenders offer personal loans for debt consolidation. Simply apply for a loan through a bank or credit union and use the funds to repay higher-interest debts or revolving debts. Your new loan will have a fixed interest rate and repayment terms.

There are also several alternatives to debt consolidation you can also consider, like a home equity loan or a 401(k) loan, but these can be riskier options that can interfere with your house and retirement plans.

» MORE: Pros and cons of debt consolidation

When to settle your debt

Choosing debt settlement should be a last resort since it can dramatically lower your credit score and be a stressful process. Unlike debt consolidation, the debt settlement process requires you to forgo paying your debts and establish financial hardship.

After several months of not repaying your debts, you or a debt settlement company try to negotiate with a creditor to settle your overdue debt with a lump sum payment or lower monthly payments. The downside is that this process will have debt collectors pursuing you, but debt settlement can also help you settle your overall debt for less than you originally owed.

Debt settlement is the best solution if your only other option is filing for bankruptcy.

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    How will paying off debt affect my credit score?

    If you repay your credit card debt, you should see an improvement in your score within a few months. However, if you use a debt settlement process, your credit score will take a big hit and take over a year to recover.

    What is the fastest way to get out of debt?

    The fastest way to get out of debt is to pay more than the minimum toward your debts and make more than one payment per month. You can sell items around your home to have more money to devote to debt repayment. Additionally, consolidating your debt to a loan with a lower interest rate can help you make faster progress.

    How much debt is too much?

    A good rule of thumb is to have less than a 36% debt-to-income (DTI) ratio. The lower this number, the more room you will have in your budget for savings.

    Bottom line

    Repaying a large amount of debt will feel tedious and never-ending at times. However, tracking your progress and avoiding new amounts of debt will lead you to the financial goals you desire. If ever the process feels too overwhelming, a credit counselor or debt consolidation company can help.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page. Specific sources for this article include:
    1. Federal Reserve Bank of New York, “Quarterly Report on Household Debt and Credit.” Accessed March 28, 2023.
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