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Home Debt 5 Ways to Get Out of Debt That Actually Work

5 Ways to Get Out of Debt That Actually Work

Scissors cutting a ball and chain that represents debt

At a glance

To get out of debt, pay off as much as possible each month and do what you can to reduce your interest payments.

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Written by Jesslyn Firman and Samuel Osbourne

Reviewed by Victoria Scanlon and Robert Jellison

Jan 24, 2022

Fresh advice you can trust

We promise to always deliver the best financial advice that we can. Our writers and editors follow strict editorial standards and operate independently from our advertisers and affiliates. Learn more about how we make money.

Table of Contents

  1. 1. Make more than the minimum payment
  2. 2. Use a debt repayment strategy
  3. 3. Negotiate a debt settlement
  4. 4. Consolidate your debts
  5. 5. Make every dollar count
  6. What if you still can’t get out of debt?

Getting out of debt can be difficult, especially if your debt keeps growing due to late fees and interest. However, not all hope is lost. No matter how deep in debt you are, it’s possible to get out—provided you follow the right strategies.

1. Make more than the minimum payment

Many debts require interest payments, especially ones that come from credit accounts (like credit card bills and loans).

How much you’ll pay in interest is based on the amount you owe. This means that if your debt becomes large enough, the interest could cause it to keep growing even if you’re making your minimum monthly payments. This is important to bear in mind if you’re trying to get out of credit card debt or other high-interest debt.

Making more than the minimum payment amount every month on each of your accounts will help to stop your debt from growing. It will also help you get out of debt quicker and reduce the amount you’ll pay in interest overall, since every dollar you pay on the “principal” (the non-interest portion of the debt) also reduces your future interest payments.

2. Use a debt repayment strategy

Following a set repayment strategy can simplify and speed up the process of getting out of debt.

These are the two most popular strategies recommended by experts:

  • The avalanche method: With the avalanche method, you pay off your debts one at a time, starting with the account that has the highest interest rate and working your way down to accounts with lower interest rates. This is the most efficient strategy because it allows you to pay off your debts more quickly and pay less in interest overall.
  • The snowball method: With the snowball method, you pay off your debts starting with the smallest debt and working your way up to the largest. With this method, you’ll pay more in interest overall, making it less efficient, but many people find it easier to stick to because paying off individual debts quickly can be motivating.

Choose the method that you think is right for you. Mathematically speaking, the avalanche method is better because it will save you money, but ultimately, the best debt payoff method is the one you’ll actually stick to.

Either way, you still need to make sure that you keep up to date on the minimum payments for all of your debts—not just the one that the method you chose is targeting. Racking up late fees will only put you deeper into debt.

3. Negotiate a debt settlement

You may be able to negotiate a debt settlement with your lender, in which they agree to clear your debt in exchange for a lump-sum payment that’s less than the total amount you owe.

Debt settlement has the potential to significantly reduce your debt. A 2018 report published by the American Fair Credit Council revealed that, on average, borrowers who successfully negotiate settlement agreements with their creditors pay less than half of the final amount they owe. 1

Downsides of debt settlement

Unfortunately, not all lenders accept settlement offers. Your lender is also unlikely to clear debt on secured loans that are backed by collateral (like your car or home) because they can get their money back by simply repossessing your collateral.

Debt settlement also damages your credit

Settled debts are recorded on your credit report and damage your credit score, although they’re usually not as harmful as other negative marks, such as debts that have been sent to debt collection agencies. Moreover, to settle a debt, you may have to completely stop making payments on it, which will further damage your credit and put you at risk of lawsuits.

Hiring a debt settlement company

If you’re not a confident negotiator, you can hire a debt settlement company to negotiate with your creditor or debt collector on your behalf. However, be wary of scammers and avoid working with companies that charge large amounts upfront.

4. Consolidate your debts

If you’re struggling to keep track of your bills, consider debt consolidation. This involves using a personal loan or a credit card to pay off multiple debts so that you only have one account to keep track of.

People typically use debt consolidation as a way to pay off credit card debt or debt on other revolving credit accounts, but it’s also useful for getting out of payday loans and other extremely high-interest debts.

Pros and cons of debt consolidation

Like other debt relief approaches, debt consolidation has pros and cons that are worth considering first.

Main advantages of debt consolidation:

  • Less chance of missing payments: Because you’ll have fewer accounts to manage, there’s a lower risk of late payments (meaning fewer late fees).
  • Saves money on interest: If you qualify for a balance transfer card or a debt consolidation loan, your lower interest rate will mean lower monthly payments.

Main disadvantages of debt consolidation:

  • Impossible without a good credit score: You’ll generally need a good credit score to qualify for a low enough interest rate on your consolidation loan (or balance transfer card) to make it worthwhile.
  • Requires applying for new credit: Debt consolidation often involves applying for new credit. You shouldn’t do that lightly, because taking out a loan or opening a new credit card account can hurt your credit by triggering a hard inquiry and affecting the length of your credit history. Thankfully, your credit should quickly recover if you make all your payments on time.

The two types of debt consolidation

As mentioned, there are two methods that people usually use to pursue debt consolidation: getting a credit card balance transfer and opening a debt consolidation loan. Here’s how they work.

Credit card balance transfer

If you have several credit cards with high interest rates, you can perform a balance transfer to move all your debts onto a single, lower-interest card. This could be a card that you already have, or a new one. Some card issuers even offer special balance transfer credit cards that come with an introductory 0% APR period where you won’t have to pay any interest.

The drawback is that these cards often come with a transfer fee. Double-check that you’ll save more in interest than you’ll lose in fees before taking out one of these cards.

Debt consolidation loan

You also can take out a special type of personal loan (aptly known as a debt consolidation loan) from a bank, credit union, or private lender and use it to pay off your debts.

Debt consolidation loans are a type of installment loan, meaning you’ll make regular payments on it over a fixed period. Since you’ll use it to pay off your other debts, these are the only debt payments you’ll need to worry about.

Debt consolidation loans can be very useful. However, they do come with certain risks. Some lenders charge origination fees, and others may increase your interest rate after an agreed-upon period. You might also end up paying more in interest overall if you’re repaying your loan over a long period, even if you have a lower interest rate and lower monthly payments.

Calculate your potential savings and fees on the debt consolidation loan you’re interested in before making a final decision.

5. Make every dollar count

If you haven’t done so already, sit down and take an honest look at your finances. This can be daunting, but it’s a necessary step to tackling debt.

Understanding exactly what you owe and what’s happening to your money will let you figure out a realistic timeframe for paying off your debts and identify the changes you need to make, such as which areas of your life to focus on for cutting down your spending.

Follow these tips to optimize your finances:

  • Create a budget: Creating a budget for yourself makes it easier to track your expenses and set realistic targets. Check your receipts and try using a budget worksheet, a free money management app, or your banking app to track your income and expenses.
  • Follow the 50/30/20 budget rule: This is a good way to control where your money is going. Take your total income after taxes and allocate 50% to essentials (i.e., rent, housing, and groceries), 30% to nonessential items, and 20% to savings or reducing your debts.
  • Only use credit when necessary: Limit the amount you’re spending on your revolving credit accounts by using cash or your bank card to make day-to-day purchases. Moreover, refrain from taking out any new loans or credit cards until you’ve gotten a solid handle on your debt.
  • Find ways to boost your income: Taking on an extra job isn’t always an option, but if there’s anything you can do to generate more money—whether it’s asking for a raise at work or taking on side gigs in your spare time—it will help you pay off your debts much sooner.
  • Consider selling some of your assets: If you’re already limiting your spending as much as you can and it’s not enough to get you out of debt, then take a look at your assets to see whether you have anything that you can live without. For example, you might be able to trade in your car for a cheaper model or sell some nonessential items you purchased.

What if you still can’t get out of debt?

If you’ve tried all of our tips but they’re not enough to get you out of debt, then don’t worry. You have two more options to get out of your current situation:

  1. Credit counseling: With this option, you’ll be able to get guidance from a professional non-profit credit counselor. They’ll review the details of your situation and help you find a solution. They may even be able to enroll you in a debt management plan where they’ll work with your creditors to get you lower interest rates and waive your late fees to make repayment easier.
  2. Bankruptcy: Bankruptcy allows you to either erase all of your debt or pay a portion of it off over a set schedule. However, this is an extreme option. Filing for bankruptcy is the most damaging thing you can do to your credit. 2 Bankruptcy stays on your credit report for up to 7 or 10 years (depending on the type you file for), and it can take many years to rebuild your credit. 3

Whichever option you pick, remember that there are laws in place to protect consumers who find themselves swamped with debt. This means that as long as you’re making a genuine effort to honor your agreements with your creditors, you don’t need to worry about going to jail over debt or sustaining permanent damage to your credit.

No matter how much debt you have, you always have options. It might take a long time to fully clear your debts, but doing so is always possible with patience and determination.

Takeaway: To get out of debt, review your debt management options and establish a realistic plan.

  • Because larger debts accumulate more interest, it’s important to act as soon as possible when you notice that your debts are getting difficult to manage.
  • Effective debt relief solutions include debt settlement, debt consolidation, the avalanche and snowball methods, and making financial adjustments to increase your available funds.
  • If these approaches don’t work, seek help from a non-profit credit counselor. As a last resort, you can file for bankruptcy to get a fresh start.

Article Sources

  1. American Fair Credit Council. "Options for Consumers in Crisis: An Updated Economic Analysis of The Debt Settlement Industry" Retrieved January 24, 2022.
  2. VantageScore. "How is this going to impact my credit score?" Retrieved January 24, 2022.
  3. Consumer Financial Protection Bureau. "I filed for bankruptcy. How long will that appear on credit reports?" Retrieved January 24, 2022.

Jesslyn Firman

Credit Analyst

View Author

Jesslyn Firman is a credit analyst for FinanceJar. Her work covers credit repair and credit scores, and in the past she's extensively researched and written about the insurance industry. Jesslyn has a B.S. in Finance and Accounting and an MBA in Management.

Samuel Osbourne

Content Writer

View Author

Sam Osbourne is a content writer for FinanceJar. His writing covers credit scores, credit repair, and renters insurance. He’s worked across a mixture of genres, including blogs, essays, and fiction. Sam has a Master’s degree in Creative Writing.

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