How to get Out of Debt

As you work on your plan, you’ll need to make all necessary adjustments to your budget along the way so you don’t overspend and slide back into debt. Plus, if you don’t have an emergency fund, consider setting some money aside in savings beforehand.

To get out of debt, you need a plan, and you need to execute that plan. That’s why we’ve created this simple, six-step, get-out-of-debt checklist that can help you leave that financial burden behind you.

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Keep this checklist someplace where you’ll see it often (like your refrigerator door, or your vision board if you have one), and make it your goal to check a task off the list each day (or each week), depending on how quickly you want to become debt-free.

What Is the Best Way to Get Out of Debt?

If you want to do this right, you want to make sure that you know where you stand before you start. You need to have a complete picture. Here’s what you need to do:

  • Gather your most recent statements for all loans and credit cards.
  • Get your free annual credit reports to check them for accuracy and to identify all debts.
  • Get your free credit score at to find out whether you’re eligible to lower your interest rates or for a debt consolidation loan.
  • Check the National Student Data System to gather all student loan information.
  1. Make A List

Having everything written out in front of you is really the key to success here. Plus, once you’ve written it all out, and it’s right there in black and white, it may not seem as insurmountable as it did before.

  • Make a list of all your debts: name of creditor, interest rate, balance, minimum monthly payment.
  • List how much you’ll need to pay in order to zero-out the cards’ debt within three years, as found on credit card statements.
  • Remember to include loans not listed on your credit reports (e.g. family loans, medical bills).
  1. Lower Your Rates

Paying high interest rates on existing debt causes your debt to really mount, and makes paying it off much more difficult. If possible, you want to lower those interest rates. Here’s what to do:

  • Based on your credit, you may qualify for much better interest rates on credit cards.
  • Open a free account with and see what kind of low rate balance transfer credit cards you can get.
  • Check out student loan consolidation and Income-based Repayment at
  • Call your card issuers to ask for lower rates on credit card balances.
  • Consider a consolidation loan and/or balance transfers to pay off high-rate credit cards at a lower rate.
  • Find out if you can refinance a high-rate auto loan.
  1. Get Your Number

Once you know what your total payoff number is, you’ll have a real, complete goal to work towards.

  • Total the three-year pay-off amount for all your credit cards.
  • Add the monthly payments for all other debts.
  • Write down the result: Your Total Monthly Payment.
  1. Plan Your Strategy

There are plenty of ways to attack this problem and you’ll likely approach this using a variety of tools and methods. Plan your strategy carefully.

  • Determine if you can afford to pay the Total Monthly Payment until your debt is paid off.
  • If not doable, contact a credit counseling agency and/or bankruptcy attorney for advice. Remember though, bankruptcy has a huge impact on your credit score, and if you’re able to work out a payment plan with your creditors, it can be avoided.
  • If doable, decide which debt to pay off first(highest interest rate or lowest balance?) — “target debt.” This is also known as the “snowball” or “avalanche” method.
  • Set up “auto pay” for required minimum for all debts except target debt.
  • Pay as much as possible toward target debt until paid off.
  • Choose new target debt and pay extra toward that one, and so on.
  1. Monitor & Adjust

Once your plan is set, don’t get too comfortable. You’ll need to track your behavior closely to make sure you’re making progress, and you’ll want to make adjustments when necessary.

  • Monitor your credit score each month to see if your credit score improves (over time it should).
  • As your credit score improves, reconsider a consolidation loan or balance transfers to save money often spent on interest charges for remaining debts. (Your interest charges are often listed on your credit card statement.)
  • Stick with your plan until your debt is paid off.
  1. Create an Emergency Fund

You may think that while paying off debt, you don’t have money to save, but this is essential. Life happens, so if anything comes up, like a job loss, medical bill, or car repair, you’re covered. The suggested amount is three to six months’ worth of expenses, but if that’s not immediately possible, aim for one months’ worth – that’s a great starting point.

  • See which expenses can be cut out of your budget. If you eat out multiple times a week, see if you can cut it down to only once a week (everyone needs a little bit of money for fun).
  • Automate your savings. See if your employer will let you contribute part of your paycheck to a savings account. The ideal amount is 10% to 20%, but if you’re trying to get out of debt, this might not be possible. See if you can start with 5% each paycheck.
  • If you can’t automate your savings from your paycheck, have your savings automated from your checking account each payday. That way, you don’t accidentally spend this money and you won’t miss it.
  • If you receive a bonus or a pay raise, see if you can afford to contribute some of that money to your emergency fund.

As you begin to work this system, keep in mind that it’s not easy. Just like losing weight, losing your debt takes work, but if you genuinely want to slough of that stressful debt, your perseverance can make it happen. And don’t fret if you need to make adjustments along the way. This isn’t about a quick fix, it’s about changing your habits and behaviors so you can achieve your financial goals.

Thank You

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