How to Get Out of Debt

There are simple, common sense steps that you can take to reduce your debt load or to get out of debt. Although the steps are not easy or painless, if you create a plan and stick to it you can significantly reduce your debt or become debt-free.

If you're ready to reduce your debt, here are some suggestions for how to achieve that goal.


Stop Borrowing Money

Although it may seem obvious that you should stop borrowing when you're significantly in debt, often the easiest way to make a loan or credit card payment, or to cover your expenses, is through a credit card charge, cash advance, or even a payday loan or title loan. The result is a cycle of borrowing that is difficult to escape.

The reality is that the more money you borrow, the more money you will owe. You cannot borrow your way out of debt. In order to pay down your debts you must find a way to start paying off your existing debt without borrowing additional funds.

Negotiate with Creditors

You may ask your creditors if they will agree to reduce the amount of your bill in exchange for an immediate payment, allow a payment plan on a bill that is due as a lump sum, or reduce the interest rate associated with your debt. The worst they can do is say "no".

  • Credit Card Debt: Some credit card companies will reduce your interest rate upon request.

  • Medical Bills: Hospitals, clinics, doctors offices and dental practices will often allow patients to make payments toward their outstanding balances. Some will offer a discount in exchange for the payment of a bill. Some medical facilities have assistance programs that may result in full or partial debt forgiveness for patients who qualify for their program.

  • Student Loans: You may be able to get a hardship deferral on student loan payments.

  • Mortgage Lenders: Some mortgage lenders will offer short-term relief to debtors who are having difficulty making their payments, for example by allowing the borrower to defer mortgage payments for a few months.

  • Utility Bills: Some utility companies offer assistance programs for customers who are having a hard time paying their bills.

  • Property Taxes: Some states and local governments offer programs that may assist, reduce, or potentially forgive property tax debts to qualified homeowners.

Budget Your Income and Expenses

The budgeting process involves your listing your monthly income and expenses, including housing costs, transportation costs, food, utilities, insurance, entertainment, clothing, cleaning supplies, and other regular expenses. You should also budget an amount that you will hold in reserve for less regular expenses, such as furniture purchases, travel and home maintenance, or for emergency expenses, such as medical bills and car repair.

You should revisit your budget every few months to see if your expenses are consistent with your budget. For example, you may find that you budgeted too much money for food, and too little for car insurance. When you find that type of discrepancy, your budget so that it accurately reflects your expenses.

If you find that you are spending more than you expected on items such as food or clothing, evaluate your purchasing habits to see if you have room to save money. Buying a store brand or purchasing food at a warehouse club may provide savings over name brand food and merchandise or the local grocery store.

Some people benefit from making shopping lists and then strictly adhering to those lists when they shop for groceries, avoiding any impulse purchases at the store.

For many people, the hardest part of the budgeting process is not creating the budget itself, but sticking to the budget, month after month. It's easy to make impulse purchases that exceed the budgeted amount. It's also easy to spend money that is being reserved for emergencies, such that it's necessary to borrow money when an emergency eventually occurs.

Difficult though it may be, it's crucial to stick to the budget.

Reduce Recurring Bills

Most people have bills that they pay each month, for example an Internet bill, cable television, and cellular telephone account.

Review your recurring bills to determine if you are paying for services that you do not use. Even if you remain under contract with a service provider, consider contacting the provider to see if you qualify for any promotions, or if you can get a reduction in your monthly bill if you renew your contract early.

Prioritize Paying Off Your High-Interest Debt

In addition to your other expenses, a portion of your budget should be devoted to paying off the balances of your debts. Identify the debts that carry the highest cost, due to their fees and interest rates, and prioritize paying off those debts.

Some people find motivation in paying off their smaller debts first and then working up to larger debts, and that's great if it works for you, but you'll get more benefit from paying off high-cost debts first.

When you pay an amount in addition to your monthly bill or payment in order to start paying down a debt, verify that your creditor is applying your additional payment to the principal balance of your debt or loan. A creditor may instead apply your additional amount to the next month's payment and, while that will accelerate the rate at which you pay off the debt, the result is that a portion of your payment will be applied to interest instead of principal.

Pay Off Your Credit Cards

Most people find that their most costly debt is credit card debt. The basic rules for paying down credit card debt are:

  • Never Make a Late Payment: The late fees and interest charges that will result from a late payment are usually substantial.

  • You Must Pay More Than the Minimum Payment: The minimum payment you are required to pay each month will often not reduce your credit card balance, or will result in a net increase in your balance due to interest charges.

  • Avoid Carrying a Balance: Once you pay down your debt, get into the habit of paying your credit card bill in full each month.

If you are inclined to make impulse purchases when you are buying items with credit cards or store cards, stop using your cards and switch to a cash budgeting system. If necessary, cut up your charge cards and throw them away.

Set Up Automatic Payments

You should set up your accounts so that your bills are automatically paid each month.

You will need to be careful not to overdraw your account, particularly as you adjust to a new budget, but once you settle into a budget the automatic payment process will ensure that your bills are paid in a timely fashion and that you avoid late fees and additional interest charges.

Get Help

If you cannot figure out how you can possibly pay your bills and still have enough money to survive at the end of the month, you may wish to consider using a credit counselor or a debt management service. You may also benefit from consolidating your debt by obtaining a lower interest personal loan or, if you have sufficient equity, refinancing your home or obtaining a home equity loan.

Make sure that you take advantage of the opportunity offered by refinancing your debt, and actually work to pay down your debt, because refinancing your debt doesn't make it go away. If you revert to overspending and additional borrowing, you may end up making your situation worse.

In some circumstances, you may see if you can borrow money from a parent or family member, but keep in mind how family relationships can be damaged or destroyed when loans aren't repaid.

If your situation is beyond the help of a credit counselor or debt management service, and you cannot find a way to take control of your bills and expenses, you should consider whether filing for bankruptcy protection is an appropriate next step.

Copyright © 2004 Aaron Larson, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.

This article was last reviewed or amended on May 7, 2018.