6 Steps to Finally Get Rid of Your Debt in 2027

Many Americans want to be debt-free. If you want to say goodbye to your debt for good and improve your personal finance health in general, take steps to free yourself from your creditors in 2027. Here’s how. 

Why 2027 Is the Right Time for Debt Relief

Debt is always a burden. But it has become more difficult for many people to manage in recent years, thanks to high interest rates and a rising cost of living.

According to the Federal Reserve, for example, the average interest rate on credit cards is 21.19% as of November 2026. By comparison, in May of 2020, the average interest rate was 14.52%. 

Card interest rates may increase or stay high into 2027 because of growing creditor concerns about rising defaults. When creditors are afraid customers won’t pay, they often raise rates.

Average interest rates on auto loans hit 11.43 for used vehicles and 7.47% for new cars in 2026. That’s up from 9.33% and 5.22% in 2020.

With many kinds of debt becoming more expensive, many people want to deal with their debt for good—especially given the ongoing economic uncertainty.

If you are afraid of rates rising or the economy faltering, positioning yourself to become debt-free ASAP is one of the smartest things you can do. It helps you avoid borrowing costs and eliminate monthly debt payments that could strain your budget.

Even if you aren’t worried about rising rates, the longer you carry debt, the costlier it is, the more frustrating it can be, and the harder it is to accomplish other goals. In fact, starting a new year owing money can take a psychological toll. So no matter your exact circumstances, it’s worth putting at least some of your debt behind you this year whether that's by the snowball method, the avalanche method, credit card debt relief, or debt consolidation.

Step 1: Get Organized

To become debt-free this year, get organized and create an effective payment plan. Start by gathering a few key documents and pieces of information. That can help you understand what you owe and how much you can truly afford to pay toward your debts. 

Here are the key steps:

• Make a complete list of your outstanding debts, the interest rates, and the balances due.  

• Check your credit report to make sure you’ve listed everything correctly, and that it doesn’t contain any accounts you did not open (because of mistakes or fraud). AnnualCreditReport.com is a great resource for obtaining your credit file for free.

• Track your spending. Look at your bank and credit card statements to track your spending. Using a budgeting app may be helpful here to see exactly how much of your cash is going to essentials like groceries and bills, and how much is going to non-essentials like eating out or movie tickets.

• Identify how much more you can pay each month toward your debt: Carefully consider budget cuts to free up extra money to put toward debt freedom.

Using the information you collect, determine the following: 

• Total outstanding debt

• Balance of each debt, and the interest rate you are being charged

• Whether interest for each is tax-deductible (remembering that the rules can change over time, so checking again in future is smart)

• Due date for monthly payments

• Funds you could use toward debt payoff 

Good organization gives you a clear picture of where you stand, what time frame for debt payoff is realistic, and what debt relief options are worth pursuing. 

Step 2: Choose the Right Repayment Plan 

You should pay extra on at least some of your debts if you want to become debt-free this year. The two main methods are the debt snowball and the debt avalanche. Here’s how each one works.

Debt snowball

The debt snowball approach involves lining up your debts from smallest to largest, and tackling the smallest debt first. Then you move onto the next-smallest. You continue this way with all your debts until you’ve paid everything off. You keep paying the minimum monthly payments on all your debts while you’re doing this to keep them current. 

For example, say you have $200 of discretionary income in a month, and $10,000 of credit card debt across five credit cards. Pay the minimum payments on all five credit cards, but allocate as much of that $200 as you can to the credit card debt with the smallest balance. When that’s done, move on to the credit card with the second-lowest balance.

A big benefit of the debt snowball method is it's the shortest path to your first payoff, which could help motivate you to stay on track.

Debt avalanche

The debt avalanche approach involves paying down the debt with the highest interest rate first, then moving on to the debt with the next-highest interest rate. As with the snowball, make at least the minimum payment for all of your debts, with extra money going to the debt with the highest APR (annual percentage rate).

That first debt you pay off may not have the smallest balance—it could even have the highest—but this approach could save you money in interest over time vs. the debt snowball method. ​​That’s because you pay off the costliest debt first. You may not score quick wins with this approach.

Step 3: Understand Your Debt Relief Options in 2027

Sometimes, making extra payments is not enough to help you become debt-free in a reasonable amount of time. If you have a substantial amount of debt or you struggle to make payments at all, consider these debt relief options. 

Each option has pros and cons. Here’s a little more detail about how each works:

• Debt consolidation: If you qualify for a debt consolidation loan, this can be a great option. You get a new loan and use it to repay smaller debts. This simplifies things, since debt consolidation typically reduces the number of payments you have to make each month. Depending on whether you make your loan term longer or shorter, it could also lower total borrowing costs. A debt consolidation loan could have a repayment term anywhere between two years and 30 years, depending on the type of loan you get.

• Debt settlement: You or a debt relief company negotiate with unsecured creditors and get them to accept less than you owe but consider it payment in full. Sometimes creditors are willing to settle debts if it's clear that you can't afford to fully repay them. It's possible to complete a debt settlement program in as little as two to four years.

• Credit counseling: Credit counselors offer debt management plans. That’s a structured payment program in which you make one monthly lump sum payment, and that money is distributed to your unsecured creditors by the credit counseling agency based on terms they’ve negotiated. The goal is to repay all of your unsecured debt within three to five years.

• Balance transfer: This involves transferring credit card debt to a credit card offering you a promotional rate of 0% on transferred balances. Usually, there is a fee of around 3% to 5% for each balance transfer. The 0% rate typically lasts 12 to 21 months. It's not a good solution for someone who can't repay their debts in that time frame. After the promotional period, the rates go up to the much higher rates typical of credit cards.

• Bankruptcy: With Chapter 7 liquidation bankruptcy, you turn over certain things that you own to the court in exchange for having your eligible unsecured debt forgiven at the end of the proceedings (usually within six months of filing). With Chapter 13 bankruptcy, you enter into a three- or five-year repayment agreement and must fulfill the repayment plan before any debt is forgiven. 

Freedom Debt Relief can negotiate debt settlement on your behalf if you decide this is the right approach and you have at least $7,500 in unsecured debt. Typically, you make a monthly deposit into a dedicated account (that you own and control). When enough money is available in the account, Freedom Debt Relief negotiates with your creditors to accept less than the full amount due. Once the creditor has accepted a settlement offer and you approve the agreement, payment is made from your dedicated account. When the terms of the agreement are satisfied, the debt is behind you and you don’t have to worry about it again.

Debt settlement may negatively impact your credit.

Step 4: Qualifying for Professional Debt Relief Programs

Debt relief programs could make dealing with debt easier, but you must qualify to participate. Requirements vary, but generally you need:

• A minimum amount of debt: Typically, the minimum amount of debt required ranges from $5,000 to $10,000. 

• Unsecured debt: Your debt must be unsecured to participate in most professional debt relief programs. That means credit cards, medical bills, most personal loans, and so on. Secured debts like car loans and mortgages are not candidates for settling.

• Proof of financial hardship: You must be facing challenges paying your bills, and may need proof of financial hardship, such as evidence of a job loss or income reduction. This helps in negotiating your debt settlement, since you can show creditors there is a reason you can’t make payments. 

• Steady income: You need to be able to afford to pay something towards your debt every month. Debt settlement can’t erase your debts completely. 

Freedom Debt Relief is a professional debt relief program that could make it easier for you to deal with your debts. You can reach out to get a free debt evaluation to find out if you qualify for the Freedom Debt Relief program. 

Step 5: Negotiate with Your Lenders for Debt Relief

If you’re not able to meet your current payment requirements, you can speak to your credit card companies and other creditors to see if they’ll adjust your payment plan or even reduce the amount you owe. 

Creditors may agree to settle debts for less than the full balance if it's clear that you have a hardship.

Typically, creditors don’t settle debt unless you are already behind on payments. If you're keeping up with minimum payments, creditors would prefer that you continue to do so. Creditors decide to accept a reduced amount if they fear that you will file bankruptcy, or if they are otherwise worried they won’t get any payments from you. Most people pursuing debt settlement don't make payments on the debts they're trying to settle. If you stop making payments, expect credit damage. Your accounts are likely to go to collections and you could face debt lawsuits.

You can and should keep setting aside money each month while you're pursuing debt settlements. Put the money into a special account that’s just for settlement offers.

You can settle debts yourself or work with a professional debt settlement program. Reputable debt relief companies have relationships with creditors and understand the reasons creditors settle, and the amounts creditors may be willing to accept under different circumstances. In a program, most people settle their first debt within a few months after joining.

During the negotiation process, you provide evidence of financial hardship when possible, such as showing that you were laid off or had a medical issue making it impossible to earn enough to pay back your debt. You might improve your chances of success if you can show that this issue is likely to persist, so payment in full isn’t possible now or down the road. 

There are risks and downsides of debt settlement. For example, your credit score takes a hit if you stop making payments on your debts. Also, depending on your financial picture, forgiven debt may be taxable.

The amount you settle for varies based on many factors, including how old the debt is, how much you owe, the nature of your financial hardship, and how successfully you (or your debt settlement company) negotiate. 

While every case is different, many creditors agree to a settlement that’s 30% to 50% of the amount you owed. Your exact circumstances dictate your payback amount, and no debt relief company can promise a specific outcome. If they do, that's a red flag for a possible scam.

Step 6: Reward Yourself Along the Way

Getting rid of your debt can be a long and challenging road, and the wins along the way are worth celebrating. Establish intermittent milestones, like working through 25% of the debt. Once you hit that goal, reward yourself by using some of your discretionary income (after paying your minimum monthly payments) with something like a nice dinner out, or a purchase you’ve wanted to make. Then, next month, start back up with paying back your debt.

Creating Your 2027 Debt Freedom Timeline

You have options for becoming free of your debt, including paying extra using the snowball or avalanche methods, consolidating debt, doing a balance transfer, or working with a debt settlement company to get relief. 

To make sure you stay on track, create a 2027 debt freedom timeline so you can track milestones, measure progress, and stay motivated. Adjust this timeline based on the debt relief method you select, as well as how much extra you can pay toward your debt. Even with adjustments, making a timeline can go a long way toward keeping you on track. 

As you make your timeline:

• Establish key milestones to monitor and celebrate progress, such as paying off $500 or $1,000, or paying off a certain percentage of your debt by a specific date.

• Consider different factors throughout the year that could affect your payoff, such as getting a tax refund or work bonus you could put toward debt—or planning for holidays that could cost you money and cause a pause in extra payments for a short time. 

• Set realistic expectations for debt amounts. It may be reasonable to pay off $1,000 or even $5,000 or even $10,000 in debt by the end of the year depending on your income, but it’s also fine to need a little longer if you owe more than you can reasonably pay off in a year. 

Once you make your timeline, stick to it. Check in regularly to confirm your progress so you can celebrate 2027 by saying goodbye to debt forever.