How to Get Out of Debt in 5 Steps

You can pay your debts off faster and save thousands in interest charges.

Debt has a way of piling up faster than many of us realize. If you have a lot of high-interest credit card debt, for example, it can feel like you’ll never make any progress. Fortunately, it's possible to get out of debt more quickly if you go about it in the right way. Plus, you could save a substantial amount of money in the process. Here are five strategies for paying off your debt. 

Key Takeaways

  • Paying off debt can seem overwhelming, but it doesn't have to be if you have a plan.
  • Knowing where your money currently goes is the first step. Then you can begin to cut unnecessary expenses and use the spare cash to pay off debt.
  • You'll save money and pay your debt off faster if you start with your highest-interest debts.
  • A debt consolidation loan could help lower the interest rate you pay on your debt.

1. Create a Budget

If you don’t have a budget, you may not know if you’re spending more than you make. Budgeting, boring as it sounds, can be a useful tool for managing your money and planning for your future. You can use software and budgeting apps like Mint, You Need a Budget, or PocketGuard to make a budget, but you can also create an effective one with just a notepad and pen. 

To get started, write down how much money you have coming in every month. Include income from your job and any other sources. 

Next, note all of your recurring, fixed expenses. Include your rent or mortgage, utility bills, insurance premiums, minimum credit card payments, and groceries. Look at how much you typically spend on nonessential expenses, such as dining out or entertainment. 

If you’re spending more than you’re making, or if there isn’t enough breathing room in your budget, look for areas where you can cut back to reduce your expenses. For example: 

  • Carpool: If you drive to work, see if there is a co-worker who lives near you who would like to carpool. Or, create a profile on to find a carpool partner. By sharing the ride, you can save money on gas and car maintenance. 
  • Shop with a grocery list: Preparing your own meals and eating at home is a great way to save money, but it's smart to shop with a list—and stick to it—to avoid unnecessary purchases. 
  • Reduce streaming services: If you're paying for multiple streaming services, pick one or two favorites and cancel the rest. 
  • Switch to a new cellphone plan: If you have an expensive cellphone plan, see if you can switch to a less costly version with your current provider. Or, shop around with different providers to find a cheaper plan. 

2. Increase Your Income

When it comes to freeing up money, there are only so many corners you can cut. After creating a budget and eliminating some expenses, your next goal should be to increase your income. If a raise or promotion at your full-time job isn’t likely, look for ways that your skills could earn you extra cash on the side.

Also, consider changing your tax withholding at work. If you receive a tax refund year after year, you may be having too much money withheld, money that could be paying down your debts in the meantime. Ask your employer for a new W-4 form that you can fill out to reduce your withholding and increase your take-home pay. Failing that, when you eventually get your tax refund, earmark it for paying off debt.

3. Use the Debt Avalanche Strategy

When you have found some additional money to pay off your debts, you need to decide how best to use it. The most effective tool for many people is sometimes called the debt avalanche strategy

With the debt avalanche method, you make a list of all of your existing debts, ordering them from the one with the highest interest rate to the one with the lowest. While you continue to make the minimum payments on every account, you put any extra money you have toward the account with the highest interest rate. 

When your highest-interest debt is paid off, move on to the account with the next highest interest rate. Continue this process until all of your debt is behind you. 

By tackling the highest-interest debt first, you will pay off your debts faster and save more money in total interest over time. 

Paying down debt not only saves you money on interest but can make it easier and cheaper to borrow money when you need to in the future, such as for a mortgage or car loan. That's because it lowers your credit utilization ratio, which is a key factor in computing your credit score.

4. Consider Debt Consolidation

If you have high-interest debt, debt consolidation can help accelerate your repayment. With debt consolidation, you take out a personal loan at a bank or other reputable lender and use it to pay off your other debts. Now you'll have just one loan to manage and one monthly payment going forward. 

Plus, if you have good credit—or a family member or friend with good credit who is willing to cosign for you—you could qualify for a debt consolidation loan with a lower interest rate than you were paying on your previous debts. That can help you pay off your debt faster and save you money in the long run. 

Investopedia publishes regularly updated lists of the best debt consolidation loans.


Note that debt consolidation is not always the best choice, and may not be available on all loan types. Moreover, fees and interest rates on a consolidated loan may not actually be better than the average across your existing debts. Also, be careful because some loan consolidations may structure unsecured loans (such as credit cards or student loans) as personal loans that are backed by collateral. Failure to pay this loan can result in the seizure of those assets.

5. Track Your Progress

Getting rid of debt doesn’t happen overnight, and it’s easy to lose your motivation along the way. To stay focused, track your progress at regular intervals, such as weekly or monthly check-ins.

Keeping a spreadsheet or a visual chart of your progress will remind you of what you’ve accomplished and the goals you still want to achieve.

Article Sources
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  1. Internal Revenue Service. "About Form W-4, Employee's Withholding Certificate."

  2. Experian. "What Is a Credit Utilization Rate?"