How to Get Out of Debt

So you’ve decided to face up to your credit card debt, and to do it all on your own. First of all, congratulations—you’ve already made the first and most important step simply by confronting the problem. And while dealing with debt by yourself can be a real challenge, it can be done.

If you’re willing to educate yourself about the right choices, make the necessary sacrifices, and put in some hard effort, you can get out of debt on your own and be well on your way to a healthier relationship with money.

There are many proven methods for eliminating debt by yourself. In this article you’ll learn how each method is designed to help you get rid of debt on your own and put yourself back on track toward financial freedom. In order to decide which method is best for your unique situation, read on.

1. Get Your Finances in Order

If you want to develop a successful plan to get out of debt, your first step is to know just how much you owe. The best way to do this is by auditing your monthly spending. Look at your bank and credit card statements and add up all your debts, including your credit card bills, mortgage, car payments, loans, and any other debts you might have. Then, add up all of your other monthly expenses, like groceries, entertainment, restaurants, and transportation costs. That will tell you how much you owe, where most of your money is going each month, and if you have money left over each month. Knowing this information will help you determine which DIY debt solution is right for you.

2. Come Up with a Plan to Get Out of Debt

Once you have a clearer picture of your monthly expenses and income, it’s time to start comparing the different methods you can use to get out of debt. Depending on how many credit cards you’re dealing with, how much you’re paying in interest, and a few other factors, your choice could be easy.

It’s important to note that all of the methods discussed below involve applying your extra income towards your credit card debt every month until your debt is paid off. So if you don’t have extra cash coming in, you may want to consider other debt relief options.

Debt Avalanche

The debt avalanche method involves eliminating your highest-interest cards first. Here’s how it works:

  1. Identify which of your credit cards has the highest interest rate. If you have more than one card with the highest rate, choose the card that also has the highest balance.
  2. Each month, pay as much as you can toward paying off that card.
  3. Pay only minimum payments for all the other cards.

Once you’ve paid off the card with the highest rate, move on the next highest-interest card and repeat the process. 

The debt avalanche method helps you save money by getting rid of your high interest debt. So if you have several credit cards with high interest rates, this may be the right method for you. This method is likely to save you the most money on interest compared to other methods. The debt avalanche method is also considered one of the most effective ways to save money while paying off your debt because it eliminates high-interest “toxic debt” first.

Debt Snowball

With the debt snowball method, you use your extra cash to pay off the credit card with the lowest balance first. Here’s how it works:

  1. Identify which of your credit cards has the lowest total balance due.
  2. Put as much money as you can toward paying off the balance on that card as soon as possible.
  3. Pay only minimums on the other cards.

After paying off that card, move on the second-lowest balance until you work your way to the highest. By eliminating these smaller accounts first, you’ll have fewer debts to worry about.

The debt snowball method is a good option if you have a lot of cards with low amounts. It’s also a method that could give you a sense of accomplishment faster. You may not get rid of your total debt quite as efficiently as you would with the debt avalanche method, but with the debt snowball method, you’ll eliminate individual debts faster.

Bonus: Debt Snowflake

The debt snowflake method can be used in conjunction with either debt avalanche or debt snowball. With this method, any time you come across money unexpectedly, you use it to pay off your debt. Even if you’ve created a very precise budget, you may sometimes end up with a few extra dollars from various sources, such as a cash rebate, money from a yard sale, cash discovered in a drawer or couch, etc.

With the debt snowflake method, you take these small amounts of money and use them to help pay off your debt faster. On its own this method won’t eliminate your debt, but if you use it along with one of the other two methods discussed, it could help you get rid of your debt more quickly.

3. Start Budgeting and Paying Off Debt

Once you choose your DIY method, you need to determine exactly how much money you can put towards your debt each month. That’s where a budget comes in.

A budget is simply a plan for how you spend your money each month. The first step to creating a budget is figuring out your monthly income. You can do this with a simple pen and paper, or by using a budgeting worksheet.

In your budget, you need to include your monthly income and then account for two types of expenses that will get paid from your income: fixed and variable.

Fixed expenses are typically costs that are the same each month, such as your mortgage or rent, internet bill, or insurance premiums. These are fairly easy to account for ahead of time, since you can find those costs by looking at a previous month’s bill.

Variable expenses are costs that fluctuate from month to month. These include groceries, utility bills, and other miscellaneous expenses. Since these costs can be hard to predict, you need to identify an average cost per month. To do this, add up your spending from previous months on each expense, then look for any upcoming events or special occasions for the rest of the year that may require you to spend more on that expense. Add those costs up to get a yearly estimate, then divide by 12 and put that number down as the average cost each month.

Once you account for all of your expenses for each month, you subtract that total from your monthly income to get the total amount of money you have leftover to use for paying down your debt using one of the methods we discussed above.

If your expenses are higher than your income, you need to go back and adjust how much you’re allotting to each expense so you can end each month with extra money.  

As the months go by, things may change in your expenses or your income, so be prepared to update your budget as necessary

After you’ve finished creating your budget, you need to use it! Make sure you don’t spend more than you have allotted for each expense. And keep in mind that as the months go by, things may change in your expenses or your income, so be prepared to update your budget as necessary to ensure you have extra money to put toward paying off your debt. If you get a bonus at work, tax return, or other windfall, immediately apply that money towards your debt.

Eventually, if you budget correctly, money from previous months will help you pay off next month’s expenses, which means your budget will get increasingly easy to manage, you’ll be able to pay down your debts, and you won’t have to live paycheck to paycheck.

4. How to Cut Back on Your Expenses

From negotiating a new cell phone bill to switching to generic brands, there are lots of ways to cut back on your expenses. Here are a few simple things you can do to reduce costs each month so you can have more money to put toward paying off your debt.

  • Make Coffee at Home: Lots of people spend upwards of $15 a week just for a cup of coffee on their way to work. It’s much cheaper (and often tastier) to invest in a coffeemaker or French press at home and make your own. While it might be easier to get coffee at a café, you’re spending money that could be helping you get out of debt.
  • Commute with Others: If you live in a city with good public transportation, it’s often less expensive to take the bus or the train rather than pay for gas and parking every day. Also, there are many ride-sharing options available in urban areas that can help you save. If you don’t have access to quality public transportation, consider carpooling with friends and splitting the cost of fuel.
  • Eat at Home: Do you spend money at restaurants every month, either because it’s more convenient or you don’t like to cook? Many supermarkets now have easy-prep meals that are just as convenient, but cost less than eating out. There are also companies that deliver meal prep kits right to your door that enable you to get a meal on the table in as little as half an hour, and they also cost less than eating out. Cooking for yourself is cheaper, and often healthier. And when you go shopping for your ingredients, buy generic rather than name-brand products and you’ll save even more.
  • Cut Out Subscriptions: We all need entertainment, but many consumers spend $25 or more every month on online streaming movie and music services. As an alternative, consider watching free streaming content on YouTube, or borrowing TV shows, music, and movies for free from your local library.
  • Cancel Your Gym Membership: While going to a gym regularly is a great way to stay fit, it can also be pretty pricey. If you’re the type of person who only uses your gym membership two or three times a month, you should seriously consider dropping it for the time being. In the meantime, try to work out at home, explore hiking trails near you, or take a job or brisk walk around your neighborhood.

There are so many more ways to save more money every month, so do whatever feels easiest and right for you. Just make sure you apply all the money you save towards your monthly debt payments!

5. Earn Some Extra Cash

In addition to cutting your expenses, increasing your income will help give you more money in your budget to put toward paying off your debt. Since every dollar counts, take any opportunity you can to earn some extra cash, however small the payoff might be.

In today’s gig economy, you have a lot of options for running a side hustle. Consider driving for Uber or Lyft on your days off, renting out a room in your home on AirBnb, tutoring students in a subject you know well, or freelancing if you’re adept at in-demand skills like graphic design or website-building.

In today’s gig economy, you have a lot of options for running a side hustle.

Another great way to earn some extra cash is to sell items you don’t use. If you have a lot of extra stuff, consider having a garage sale or posting the items for sale on EBay or Craigslist. Just look around your home and ask yourself whether or not you really use all that stuff. If not, it might be converted into cash and used to pay off your debt.

Know When to Ask for Help

If you’ve already decided that you want to get out of debt all on your own, that’s great. Keep in mind, though, that there’s no shame in asking for help. If you’re following all of the above steps and still having trouble paying off your debt, or if you’re unable to adjust your income and expense to enable you to have extra money each month to pay off your debt, it might be time to get some debt help.

Don’t know what sort of help you might need? Download our free debt guide now to learn about 6 different ways to get out of debt.

If you’re still not sure whether or not you have what it takes to handle your debt on your own, there’s no harm in requesting a free debt consultation from Freedom Debt Relief. One of our Certified Debt Consultants can walk you through your options and help you find the right solution.