Top 13 ways to manage your debt? How to get out from debt

Getting out of debt is a marathon, not a sprint, it’s about cleaning up the financial mess one step at a time. Below I have categorized the top 13 best for getting out of debt based on effectiveness, ease of action and real life situations, drawn from financial experts such as Dave Ramsey, NerdWallet, and Consumer Financial Protection Bureau. I would suggest you start with the first few so that you can make quick adjustments while furthering your momentum.

Negotiate Rates:

When you negotiate rates, you are essentially asking your lender to reduce the interest rate that you pay on debt. It is similar to asking for a discount on the “rent” for your loan. The lower the interest, the more of your monthly payment goes toward paying back the original amount you borrowed, not just the fees of the interest. This allows you to pay the debt back much quicker, saving you a lot of money in the long run. This is a great tool for you to use to make your existing debt more manageable.

• How to Do It: Call lenders: “Can you lower my APR?” (Success rate: 70% per FTC).
• Pro: Instant savings
• Con: Time on phone
• Example Savings: Drops 18% to 12% = $150/year

Enroll in Debt Management Plan:

Joining a Debt Management Plan (DMP) is like hiring someone to handle your debt for you. You will work with a non-profit credit counseling organization who works with all your lenders and demands one payment at a lower interest rate. You simply make one payment a month to the agency, and they pay the creditors for you. This makes the debt manageable, easier to pay off, and a clear plan towards getting out of debt.

• How to Do It: Non-profit like NFCC.org: They negotiate 40-50% rate cuts.
• Pro: Professional help
• Con: Small monthly fee ($25)
• Example Savings: $15k debt: $300/month vs. $450

Track All Debts:

Tracking All Debts means to have a full picture of everything you owe, by making a full list of those debts. For every debt (which can include credit cards, bank loans, or a medical bill), you get the total amount owed, the minimum payment amount due each month, and the interest percentage of each debt. By writing down all your debts, you have a comprehensive understanding of where your finances stand. Now that you know where your financial situation stands, you can move forward with a plan to pay off debts in an orderly fashion, rather than feeling buried by them. Tracking all debts is the foundational step to take control of debt.

• How to Do It: Spreadsheet: Creditor, balance, interest rate, min. payment.
• Pro: See the full picture
• Con: Eye-opening
• Example Savings: Spots $500 hidden fees

Stop Using Credit Cards:

Keeping your cards tucked away, and using cash or your debit card instead to make all your purchases. The objective is to stop accumulating charges on your credit if you are trying to pay them off. By not using credit, you will not increase your debt and actually be reducing what you owe. This is an important step towards actually making some progress to finally get your debt sorted out.

• How to Do It: Freeze cards in ice or cut them up. Use cash/debit only.
• Pro: Halts snowball
• Con: Temptation lingers
• Example Savings: Avoids $200 new debt/month

Create a Budget:

Assigning every dollar you earn a specific job. You track how much money you make and plan accordingly how that money can be allocated toward all necessary expenses, such as rent and food, with a designated percentage for recurring debt payments. Following this plan guarantees that there is always enough money to make the payments, as well as identify any discretionary money, if available, to be used to pay down debt faster. A budget serves as your guide on how to use your income wisely and take control of your debt.

• How to Do It: List income vs. expenses (use apps like Mint or YNAB). Cut non-essentials by 20%.
• Pro: Total control
• Con: Takes 30 min setup
• Example Savings: $300/month freed up

Consolidate High-Interest Debt:

Merging numerous high-cost debts – such as several credit card debts – together into one single loan and a lower interest rate. Rather than managing multiple different payments of high cost, you only have to make a single simpler, larger payment each month. This payment is usually lower and more affordable, providing you with the ability to pay off your debt sooner and save money on interest charges. It is a method to assist you with the complexity of your finances and reduce the overall cost of your debt.

• How to Do It: Balance transfer card (0% intro APR) or personal loan (avg. 10% rate).
• Pro: Cuts interest
• Con: Fees (3-5%)
• Example Savings: $10k at 20% → $200/month saved

Pay Minimums on All:

The cardinal rule to follow when navigating your finances and managing multiple debts. Essentially, you should pay at least the minimum payment due on every single debt every month. This practice protects you from incurring exorbitant late fees and harming your credit rating. Paying at least the minimum due on each credit account preserves your account’s good standing, thereby safeguarding your overall financial health while you work to pay off debts. This practice allows you to devote any extra money to pay off one debt at a time.

• How to Do It: Automate payments to avoid fees ($35 each late).
• Pro: Protects credit score
• Con: Doesn’t reduce principal fast
• Example Savings: Saves $420/year in fees

Build $1,000 Emergency Fund:

Establishing a $1,000 emergency fund involves putting aside a nominal amount of money for unforeseen costs such as a car breakdown or medical expenses. This small step creates a safety net: when you face an unexpected expense, you can pay for it using cash rather than relying on credit. By using savings rather than new debt, you aren’t increasing your overall debt burden, which helps keep you on track with repayment. It’s a crucial way to safeguard your progress and break the cycle of debt.

• How to Do It: Save $20/day in separate account.
• Pro: Stops crisis borrowing
• Con: Delays debt payoff slightly
• Example Savings: Prevents $500 payday loan

Increase Income:

Boosting your income requires you to identify ways to earn additional income, whether it is through a part-time job, freelance work, or selling items you no longer want. This gives you extra cash that you can use to directly pay down your debt. By adding this extra income to your payments, you can pay down your balance much quicker and save on interest charges. This is a powerful way to accelerate your debt reduction and reach life without debt more quickly.

• How to Do It: Side hustle (Uber, freelance): Aim for +$500/month.
• Pro: Accelerates everything
• Con: Time investment
• Example Savings: Cuts payoff by 6 months

Debt Snowball Method:

The Debt Snowball Method is an encouraging approach to debt reduction. To implement this method, you begin by listing your debts from the smallest balance to the largest. You then pay the minimum on all your debts but put any extra money that you have towards the smallest balance first. Once you have paid off the smallest balance, you take the total amount being paid on that balance and “snowball” it onto the next smallest balance. This will create a larger “snowball” of payments that will help you pay off your debts quickly – one by one – creating excitement and confidence along the way.

• How to Do It: Pay minimums + extra on smallest debt first. Celebrate payoffs.
• Pro: Builds momentum
• Con: Ignores interest math
• Example Savings: $20k total: 18 months

Cut Expenses Ruthlessly:

Deciding to take an honest look at your spending and making the temporary sacrifices to eliminate every non-essential cost. You should cancel subscriptions you aren’t using, limit your dining out, and delay your discretionary wants, like clothes and entertainment. Then take the money you have freed up and use it towards paying down your debt. By adopting a trimmed down budget, you will have more cash available for debt payments, which will help get you out of debt faster. It is a concentrated temporary sacrifice for the future freedom of being debt free.

• How to Do It: No dining out, sell stuff on eBay: Free $400/month.
• Pro: Immediate cash
• Con: Lifestyle change
• Example Savings: Funds $5k payoff in 1 year

Debt Avalanche Method:

The Debt Avalanche Method is a systematic approach for paying off your debts that will save you the most money in interest payments. You begin by listing all your debts, prioritized by the interest rate that is highest to lowest. You will then pay the minimum on all, but focus any additional money towards the debt with the very highest rate first. After that one is paid off, you take the full amount you were paying total and “avalanche” it into the debt with the next highest rate. This method helps you most efficiently reduce the most expensive debt first, saving you money in the long run.

• How to Do It: Extra $ on highest interest debt first.
• Pro: Saves most money
• Con: Slower wins
• Example Savings: Same $20k: 15 months, $1k saved

Debt Settlement (Last Resort):

Debt Settlement is an option of last resort when you or a company you hire speak to your lenders and negotiate the possibility of paying off a debt for less than what you owe. For example, you may pay a one-time payment of $2,500 and settle a $5,000 debt. If you attempt this option, it may help with part of your debt, but it will hurt your credit very significantly (as you will receive a status on your credit report that shows a settled or charged off debt), could result in some tax bills if the forgiven amount is considered taxable income, and is risky since creditors are not required to agree to this option. This option should only be considered when you have exhausted all other options and are facing extreme financial hardship.

• How to Do It: Negotiate lump-sum payoff (40-60% off) via service like Freedom Debt Relief.
• Pro: Reduces balance fast
• Con: Hurts credit 2 years
• Example Savings: $10k → Pay $4k, done in 24 months

Conclusion

Eliminating debt is simple. Just track debt, stop taking on new debt, pay off the smallest debt first to get “quick wins,” and come up with extra cash from side hustles or cuts to add to the debt payment. Follow those steps and you’ll be debt-free in 1-2 years (and save thousands in interest). You can do this! Get started today!

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