Practical Ways to Get Out of Debt
Learn how to understand your debts, talk to creditors, avoid scams, and build a realistic plan to become debt-free and stay that way.
Being in debt can feel overwhelming, but you are not stuck. With a clear picture of what you owe, a realistic budget, and smart decisions about outside help, you can move step by step toward becoming debt-free. Taking action early and knowing your rights makes a major difference in how quickly and safely you can turn things around.
1. Get a Clear Picture of Your Debt
The first move in any debt payoff plan is understanding exactly what you owe. This lets you prioritize, avoid missed payments, and decide which strategies will work best for you.
1.1 List Every Debt in One Place
Gather recent statements for all your accounts, including:
- Credit cards
- Personal loans and lines of credit
- Auto loans
- Mortgages or home equity loans
- Student loans (federal and private)
- Medical bills and other overdue balances
For each debt, write down:
- Creditor or lender name
- Total balance
- Interest rate (APR)
- Minimum monthly payment
- Due date
- Status (current, late, in collections, charged-off)
1.2 Compare Interest Rates and Risks
Not all debts are equal. Some cost much more than others or have more serious consequences if you fall behind.
As you review your list, mark debts that are:
- High-interest (often credit cards, payday loans)
- Secured by property (like a car or home, where you risk repossession or foreclosure)
- In collections (where collection calls and credit damage may already be happening)
| Type of Debt | Typical Risk if You Don’t Pay | Common Priority Level |
|---|---|---|
| Mortgage or Rent | Loss of housing through eviction or foreclosure | Very high |
| Auto Loan | Vehicle repossession | High |
| Credit Card | Collection calls, credit score damage, higher interest | Medium to high |
| Student Loan | Collection, garnishment; usually no collateral | Medium |
| Medical Bill | Collections, but usually no immediate loss of property | Medium |
Understanding Wraparound Mortgages in Real Estate >
2. Build a Budget That Works in Real Life
A budget is not about perfection; it is a tool to tell your money where to go. The goal is to make sure necessities and minimum payments are covered first, then direct any remaining cash to debt payoff.
2.1 Start with Income and Essential Expenses
Gather pay stubs and benefit statements for a typical month. Write down your total net income (after taxes) from:
- Employment or self-employment
- Side jobs
- Government benefits
- Child support or alimony
Next list essential costs that you must pay to maintain housing, health, and basic functioning:
- Rent or mortgage
- Utilities (electricity, water, gas, trash, basic internet)
- Groceries and basic household supplies
- Transportation (gas, transit passes, insurance)
- Health insurance premiums and necessary medications
- Minimum debt payments
2.2 Trim Non-Essential Spending
Once the essentials are listed, review areas where you might be able to cut back or pause while you work on debt:
- Eating out and takeout
- Subscription services and apps you rarely use
- Entertainment and shopping
- Vacations or costly travel
Even small changes can free up money to apply toward your highest-priority debts. Revisit this list every month and look for one or two more expenses you can reduce.
2.3 Decide How Much You Can Put Toward Debt
Subtract your essential expenses from your monthly income. The amount left over is what you can direct toward extra debt payments or an emergency buffer. If the number is negative, you may need:
- Additional income (extra hours, side work, or a better-paying job)
- Further expense cuts
- Help from a reputable counselor to reassess your options
3. Talk to Your Creditors Before Collections Start
If you are struggling to keep up, talking to your lenders early is usually better than ignoring the problem. Many creditors are more flexible before an account is severely late or sent to collections.
3.1 How to Prepare for the Call
Before you contact a creditor:
- Review your budget and know what you can realistically afford to pay.
- Have your account number, recent statement, and any hardship details ready.
- Write down a basic script so you stay calm and focused.
3.2 What to Ask Your Credit Card Company
When you call a credit card issuer, consider asking for:
- A lower interest rate to reduce how much interest you pay over time.
- Waiver or reduction of fees such as late fees or over-limit fees.
- A more affordable payment plan with smaller monthly payments.
If the representative cannot help, politely ask if there is a hardship department or supervisor with authority to adjust your terms.
3.3 If You Are Behind on Payments
If you are already late or expect to miss payments:
- Call creditors before the account goes to a collection agency whenever possible.
- Explain your situation honestly (job loss, medical issues, income drop).
- Ask about temporary hardship programs, deferments, or modified payment plans.
- Write down the name, date, and details of every conversation.
Never agree to a new payment plan without understanding how it affects interest, fees, and your credit report. Ask for a copy of any agreement in writing.
4. Dealing with Debt Collectors Safely
If a debt has already been sent to collections, you still have rights. Talking to collectors may help you confirm whether the debt is legitimate and possibly work out a payment or settlement that fits your situation.
4.1 Confirm the Debt Is Real and Accurate
When a debt collector calls you:
- Ask for the collector’s name, company, address, and phone number.
- Request written validation that shows who you owe, the original creditor, and the amount.
- Compare the information to your own records.
Do not share personal information such as your full Social Security number or bank account numbers during an initial call. Not everyone who claims to collect a debt is legitimate.
4.2 Discuss Payment Options Carefully
If the debt is valid and you decide to pay:
- Base any offer on what your budget shows you can afford.
- Negotiate for a realistic payment schedule or a lump-sum settlement you can truly pay.
- Ask the collector to send any agreement to you in writing before you pay.
- Use a payment method that provides documentation, such as a check or electronic transfer.
Keep copies of all letters, agreements, and receipts in case questions arise later.
5. Special Types of Debt: Housing, Student Loans, and More
Certain debts have unique rules, protections, or options. Paying attention to these can protect your home, education benefits, or car.
5.1 Mortgage or Rent Troubles
If you are behind on your mortgage or struggling with rent, act quickly. For homeowners, contacting your lender early can sometimes help you avoid foreclosure.
Homeowners may be able to:
- Request a temporary pause or reduction in payments (forbearance or modification).
- Extend the loan term to lower payments.
- Explore other loss-mitigation options offered by the lender.
If you need help understanding your options, you can contact a HUD-approved housing counseling agency for free or low-cost advice.
5.2 Federal and Private Student Loans
Student loans work differently from most other debts, and the options depend on whether your loans are federal or private.
- Federal student loans often offer income-driven repayment plans, temporary deferments, or forbearance options based on financial hardship.
- Private student loans are controlled by the lender’s own policies, but some servicers may allow modified payment plans or temporary relief.
Contact your servicer directly to learn which programs you qualify for and what they mean for the total cost of your loan over time.
5.3 Car Loans and Other Secured Debts
With a car loan or other secured debt, the lender may take the property if you fall behind. If you are at risk of repossession:
- Call the lender quickly and ask whether a temporary extension or modified plan is possible.
- Revisit your budget to see if there are expenses you can cut to protect essential items like your vehicle.
6. Getting Help from Trusted Credit Counselors
Not everyone wants to manage debt alone. A legitimate credit counseling organization can review your entire financial situation and help you build a plan.
6.1 What Credit Counselors Do
Reputable credit counseling agencies may help you:
- Review your income, expenses, and debts in detail.
- Create a realistic budget and financial goals.
- Set up a debt management plan (DMP), where you make one monthly payment to the agency and it pays your creditors, often at reduced interest rates.
- Learn strategies for saving and avoiding future debt problems.
6.2 How to Find Legitimate Counseling
Credit counseling services are often available through:
- Nonprofit organizations
- Credit unions and community financial institutions
- Universities or extension programs
- Military personal financial counselors
Look for agencies that:
- Are nonprofit and transparent about all fees.
- Offer in-person, phone, or online counseling with trained staff.
- Provide educational materials and not just a quick sales pitch.
Always ask how the counselors are compensated and whether they receive incentives for selling certain services.
7. Debt Relief Programs, Consolidation, and Settlement
Some companies promise fast solutions to overwhelming debt. While certain options can help, they also come with risks and potential damage to your credit and finances.
7.1 Debt Consolidation
Debt consolidation means combining multiple debts into one new loan or account, often with a single monthly payment.
Common forms include:
- A personal loan used to pay off credit cards or other debts.
- A balance transfer credit card with a lower introductory interest rate.
- A home equity loan or line of credit (HELOC).
Before consolidating, compare:
- The interest rate and fees on the new loan versus your current debts.
- Whether you are putting your home or other property at risk by using it as collateral.
- The total cost over time; a longer repayment period may mean paying more overall, even with a lower rate.
7.2 Debt Settlement and Why It’s Risky
Debt settlement companies typically ask you to stop paying your creditors and instead send funds to them each month. They then claim they will negotiate with your creditors to settle your debts for less than you owe.
This approach can be risky because:
- Your accounts may fall further behind, adding late fees and interest.
- Your credit score can drop significantly.
- Creditors may still sue you for unpaid balances.
- You may pay high fees to the settlement company without guaranteed results.
Instead of paying a company to negotiate, you can often try to resolve debts yourself directly with your creditors or with the guidance of a nonprofit counselor.
7.3 When Bankruptcy Might Be Considered
For some people with severe financial hardship, bankruptcy may eventually be an option to explore. Bankruptcy has serious long-term consequences and may not wipe out all types of debts, but it can provide a structured way to deal with unmanageable obligations.
Before considering this step, it is wise to talk with a qualified legal professional or a reputable nonprofit counseling agency to understand how bankruptcy would affect you now and in the future.
8. Protect Yourself from Debt Relief Scams
Unfortunately, scammers often target people who are already stressed about money. They might promise instant relief, guaranteed results, or government-program access for a fee.
8.1 Common Warning Signs
Be cautious of companies that:
- Ask for upfront fees before providing any service.
- Guarantee they can make your debt or negative items disappear.
- Tell you to stop communicating with creditors entirely.
- Pressure you to sign up quickly, without time to review documents.
- Refuse to give details in writing.
8.2 How to Check a Company’s Reputation
Before signing any contract or sharing personal information:
- Search online with the company name plus words like “complaint,” “review,” or “scam.”
- Check with your state attorney general or local consumer protection office.
- Read all written materials, including fine print, carefully.
If something feels off, walk away. Legitimate help should be transparent about costs, risks, and alternatives.
9. Staying Out of Debt Once You’re Back on Track
Getting out of debt is a major achievement. Staying out of debt requires new habits and a plan to handle future surprises.
9.1 Build a Small Emergency Fund
Unexpected expenses are a common reason people rely on credit. After you have stabilized your situation, aim to set aside a small emergency fund, even if it is only a few hundred dollars at first. Over time, many experts recommend building toward three to six months of essential expenses, but starting small is perfectly fine.
9.2 Keep Using Your Budget
Your budget should not disappear once the debt is gone. Continue to:
- Track income and spending regularly.
- Adjust categories as your needs change.
- Set goals such as saving for large purchases rather than financing them.
9.3 Use Credit Thoughtfully
Credit can be a tool, but it is easy to fall back into old patterns. Consider:
- Paying credit card balances in full each month whenever possible.
- Avoiding high-cost products like payday loans.
- Reviewing your credit reports regularly for errors or signs of fraud.
10. Frequently Asked Questions
10.1 Is it better to pay off small debts first or the highest interest rate?
Paying the highest interest rate debts first usually saves the most money over time because you reduce expensive interest charges more quickly. Some people prefer paying small balances first for motivation. Either approach can work if you stay consistent and keep making at least the minimum payments on all debts.
10.2 Should I use my retirement savings to pay off debt?
Using retirement funds to pay off debt can create taxes, penalties, and long-term losses in future savings. For many people, tapping retirement accounts is a last resort. Talking to a financial counselor or tax professional before doing this can help you understand the full impact.
10.3 Can I negotiate lower interest rates myself?
Yes. You can call your credit card company or other lenders and ask for a lower rate, especially if you have a record of on-time payments or improved credit. There is no guarantee they will say yes, but asking costs nothing and may save you money if they agree.
10.4 Will working with a credit counselor hurt my credit score?
Talking to a credit counseling agency by itself does not typically affect your credit score. If you enroll in a debt management plan, some lenders may note that on your credit reports, but in many cases your score may improve over time as you make regular on-time payments and reduce your balances.
10.5 What should I do if a debt collector is harassing me?
If a collector is using abusive language, calling excessively, or contacting you at odd hours, you can document the behavior and learn about your rights under debt collection laws. You can also submit complaints to consumer protection agencies or seek legal advice if necessary.
References
- How To Get Out of Debt — Federal Trade Commission (FTC). 2023-06-13. https://consumer.ftc.gov/articles/how-get-out-debt
- Three Steps to Managing and Getting Out of Debt — California Department of Financial Protection and Innovation. 2022-05-19. https://dfpi.ca.gov/news/insights/three-steps-to-managing-and-getting-out-of-debt/
- 5 Debt Repayment Strategies That Could Change Your Life — Navy Federal Credit Union. 2023-02-01. https://www.navyfederal.org/makingcents/credit-debt/debt-repayment-strategies.html
- Getting Out of Debt is Possible — American Bankers Association. 2022-08-10. https://www.aba.com/advocacy/community-programs/consumer-resources/manage-your-money/getting-out-of-debt-is-possible
- What Is an Emergency Fund? — Consumer Financial Protection Bureau (CFPB). 2022-09-30. https://www.consumerfinance.gov/consumer-tools/educator-tools/resources-for-older-adults/what-is-an-emergency-fund/
Similar Articles
Read full bio of Sneha Tete
