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If you’re wondering how to get out of debt, there are many ways to do so, from refinancing or settling debts to bringing in additional sources of income.
Learning how to get out of debt will be unique to each person because different methods may work better for different people depending on several factors, like types of expenses and budget flexibility. Remember that the best way to get out of debt is whichever method you can use.
Fortunately, by developing good habits to take care of debt as soon as possible, you can prevent your debt from becoming unmanageable. Read on to learn 15 tips for getting and staying out of debt.
Making more than your minimum payment will help reduce the additional amount you have to pay due to interest. WalletHub reported that most minimum payments are $20 to $35 or about 1 to 3 percent of your total balance. If you only pay the minimum, it can take years to pay your balance, and you’ll pay thousands in interest.
Fortunately, you can reduce the cost of interest by paying more than the minimum amount. This is a way to get out of credit card debt without paying much more than you initially borrowed.
Wondering how much more than the minimum you should pay? According to money coach Lynnette Khalfani-Cox, “When feasible, I typically tell people to shoot for paying two to three times the minimum payment … If you can’t pay well above the minimum due, just pay whatever you can afford, even if it’s just $10 or $25 extra. Every little bit will help.”
Best for: All forms of debt for people with additional disposable income
Making extra payments in addition to your scheduled monthly payments is similar to paying more than the minimum. What’s different is that this is a habit you can develop whenever you see you have some extra money. For example, if you spend less on groceries or other expenses in a given month, you can make an extra payment with the additional funds.
This is a great strategy if you have multiple income streams and get paid at different times. Each time you receive money, you can pay extra toward your debts.
Best for: Larger high-interest debts
The snowball method involves paying off your smallest debt in full and slowly working your way up to your largest debt. This is one of the most popular methods because it helps you build momentum and confidence that it’s possible to pay off your debts completely.
Each month or each paycheck, look at your smallest debt and contribute as much money to paying it off as you can. For this to work, you’ll also need enough money to make the minimum payments on your other debts to avoid late or missed payments. Some people find it helpful to save money for a few months beforehand to ensure they have enough to do this method.
Best for: Low- and medium-level debts
While the snowball method seeks to build confidence by paying off smaller debts first, the avalanche method is all about trying to pay the least amount possible by tackling debts with the highest interest rates first.
Here’s what financial expert Rick Orford says about the avalanche method: “The avalanche method happens to be my favorite way to reduce debt. It’s mathematically the fastest way.”
By tackling your highest interest debts first, you’ll save more than you would with the snowball method because you’ll avoid accruing more interest.
Remember that this method suggests paying off debts with the highest interest rates first, not the highest balance. Paying off the highest balance won’t save you as much money since you’ll still be accruing high interest on your other remaining balances.
Best for: Debts with high interest rates like store credit cards
Another promising way to pay off your debts faster is by lowering your interest rates altogether. This strategy can be helpful for any debts, but especially those with high interest rates that make paying off debts difficult or impossible.
So how can you lower your rates? According to Lynnette Khalfani-Cox, “Believe it or not, the best way to get a lower interest rate on your credit card is to just call up the bank/creditor that issued the card and ask for a lower rate.”
If your credit is good and you’ve paid your bills on time in the past, your chances of negotiating a better rate are good. This method is always worth a try since it won’t hurt your credit and doesn’t cost a thing.
Best for: People with good credit and a history of paying bills on time
You can also try to shorten the length of your loans by refinancing. While this may make for higher monthly payments in the short term, you’ll usually pay far less in the long term by avoiding more interest charges. Refinancing can also help you get lower interest rates.
Some of your debts that you may be able to refinance include:
Banks and financial institutions often refinance as a way to keep you as a customer. You have a better chance of being approved for a refinance due to your loyalty if you’ve been a customer for a long time. If your credit is much better than when you originally received your loan, you’ll also have a better chance of being approved.
Best for: High-interest debts
Debt consolidation works by combining multiple debts into one. This is similar to refinancing in that it can save you money in interest, which helps you pay your debts faster. You’ll need to find a lender who will assist you with a debt consolidation loan, ideally at a lower interest rate than the rate you’re paying.
Here are a few ways you may be able to consolidate your debts:
If you plan to consolidate debts, also remember to keep track of your finances overall. Clevergirl Finance advises consumers to “keep in mind that debt consolidation is not a solution to poor financial habits. You’ll still need to address things like your money mindset, financial discipline, overspending, budgeting and creating a debt repayment plan.”
Best for: Numerous debts from multiple lenders
Taking a look at your monthly spending habits and finding areas to cut back provides you with additional money to pay toward your debts. Many people keep track of their receipts during the month and then analyze them at the end of the month. From here, you may find places where you can reduce your spending, such as eating out or buying luxury items.
According to financial expert Rick Orford, “Decreasing spending is by far the easiest way to generate a monthly surplus. The monthly surplus can then get used to [pay] off debt.”
Many people are surprised by how much they spend, which can add up. Fortunately, it also adds up when you make minor changes to your budget. Saving $20 here or $50 there each month can provide you with $100 or more to put toward your debts.
Best for: All forms of debt and all income levels
The 2x rule is a budgeting strategy that requires you to pay off a portion of your debt any time you want to buy something you don’t necessarily need. For example, if you wanted to buy a new clothing item for $100, you would not allow yourself to buy it unless you could pay the same amount toward your debt.
Not only does this help you pay off your debts, but you’ll also save money on items that aren’t necessities.
This is a common strategy for people who are saving or investing. Once you pay off your debts, you’ll already be in the habit of following the 2x rule, which will help you save for retirement or larger expenses like trips or a new home.
Best for: People with additional disposable income
S.M.A.R.T. goals help you set realistic goals for paying off debt. People often use S.M.A.R.T. goals for completing projects or self-improvement, and these goals are also useful for your financial life.
S.M.A.R.T. goals are specific, measurable, achievable, relevant and time-bound. Here are some questions to help you set S.M.A.R.T. goals:
Best for: Anyone who wants a tangible plan to eliminate debts
If you’re struggling to pay off debt, having some additional income could make a huge difference. Asking for a raise is a fast, easy way to do this—and it works most of the time.
According to a survey conducted by Payscale, 70 percent of employees who ask for a raise receive one. About 39 percent receive their asked amount, and 31 percent receive an offer less than they asked for.
What to do if your request for a raise is rejected? First, ask for a raise. Then, if that doesn’t work, look for a new job that pays more. While this may be easier said than done, the time you spend looking for a new job is work that pays off.
Best for: Anyone with debt that is also currently employed
Did you know that you may be able to negotiate your utility, phone or other bills to a lower payment for the same service? The best part is, you may not have to do it yourself. Bill negotiation services like Billshark or BillCutterz can negotiate bills on your behalf. If they can lower your bill, they’ll take a percentage of the savings as payment.
With the extra money you save on your bills, you can make bigger or more frequent payments on your debt so you can pay it off faster.
Best for: All forms of debt
If you feel completely overwhelmed by debt and are unable to pay it off yourself, try looking into debt management plans. These are programs usually run by nonprofits that can make paying off debt easier.
Advisors can negotiate debts with your creditors to try and get better loan terms. They can also consolidate your debts into one lump sum without you needing a loan. Afterward, they’ll set up a repayment plan with you, you’ll make payments directly to the agency and they will pay off your creditors.
“In return [for their services], they will likely ask you to close certain cards and continue making monthly payments. It usually costs about $50 to $75 to set up a DMP, along with a monthly service fee of about $25 to $35,” says Clever Girl Finance.
Some debt management agencies to look into include InCharge Debt Solutions and the National Foundation for Credit Counseling.
Best for: Overwhelming debt and people who feel they cannot tackle debt alone
Sometimes, you can negotiate with your creditors to settle debts for a lower amount than you owe. This is an ideal strategy for people who have debts in collections. Collection agencies often buy your debt for less than what you originally owed, so they’re willing to settle your debt for less as well. Collection accounts can also hurt your credit, so it’s a good idea to prioritize these debts.
Best for: Older debts and debts in collections
As a last resort, bankruptcy may be able to offer you relief from debts. However, bankruptcy has lasting negative financial consequences, so avoid it if you can.
Best for: Unmanageable debt and people with no other options
Chapter 7 bankruptcies work by liquidating your assets, then using that money to pay off your debts. Chapter 7 bankruptcies typically clear any remaining unsecured debt, such as credit card debt, medical bills or personal loans. Chapter 7 bankruptcy usually won’t clear student loans, court fees, owed alimony or child support payments.
This bankruptcy will stay on your credit report for up to 10 years.
Best for: Unmanageable debt and people without income
Chapter 13 bankruptcies do not require you to liquidate your assets. Instead, you’ll have a repayment plan for three to five years. At the end of the repayment period, any remaining qualifying debt will be cleared. To qualify for a Chapter 13 bankruptcy, you’ll need to have a steady income and be current on your taxes.
This bankruptcy will stay on your credit report for up to seven years.
Best for: Unmanageable debt and people with a steady income
Finding sources of extra income—or ways to free up the income you already have—can help you utilize some of the other tips listed here more easily. For example, having extra money can help you make larger payments or use the snowball method without worrying as much about your other bills.
Here are a few ideas that can help you make more money or use your income more effectively:
Here are some specific strategies we recommend if you’re working with a low income and bad credit.
There are many nonprofit organizations that offer a variety of financial services for free. Not only can these programs help you find ways to pay off your debt, but they can also help you avoid debt in the future through different strategies. Some of the services they provide can include:
As you’ve learned, interest can cost you a lot of money, which is why it can be helpful to get a loan from someone you know if you need help getting out of debt. You don’t need good credit to borrow from a friend or family member—just set expectations for repayment beforehand.
You might have bad credit due to errors on your credit report that are hurting your credit and preventing you from getting better interest rates, so it’s a good idea to check your credit report regularly. It may also be helpful to familiarize yourself with debt collection laws because some collectors may be overreaching, or there may be collection items on your credit report in error.
Here are some answers to other common questions about paying off debt.
If you’ve been the victim of a scam, you may be able to get your money back. Here are a few things you can try:
According to financial expert Rick Orford, “The best way for Americans to learn how to pay off debt fast, even with no money, is by reducing spending, increasing income and using the leftover monthly surplus to pay the debt.”
Here are a few ways you may be able to implement this advice to pay off your debt:
If you can’t make payments on your bills, try to get ahead of the situation as soon as possible. Here are some strategies to help:
Having debt can hurt your credit if it causes you to have a high credit utilization ratio or to miss payments or make payments late. This is why it’s helpful to use these different strategies to pay off your debts sooner rather than later.
As you pay off your debts, you want to ensure that your payments are reported properly, but sometimes, there are errors that you may be unaware of.
Lexington Law Firm can help you work to address errors on your credit reports. In addition to assisting you with this, we can also help you protect your credit through continuous credit monitoring and credit education services. To learn more about how we can help, look into working with Lexington Law today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
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