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Still, it’s a situation that’s becoming increasingly common. If you’re one of the many looking for an escape from the heavy burden of debt, give these proven strategies a try.

The first step to getting out of debt

To be sure, there are powerful strategies to eliminate debt. But for any of them to work, it’s critical to identify and fix the circumstances that caused that debt in the first place. You may be struggling because of a job loss, a large emergency purchase, or simply impulse purchases. Whatever the case, you won’t be able to zero out your debt with the following methods unless you address those issues. You’ll also need to know:

1. How much debt you have.
2. Your total monthly spending on necessities like rent, utilities, food, gas, etc., as well as your minimum debt payments.
3. The amount of remaining income that can be channeled toward paying down your debt faster than just the minimums would accomplish.

This will give you the information you need to budget properly and help you decide which strategy will best serve your needs.

Debt snowball method

The debt snowball method to getting out of debt is a simple concept: Pay off your balances in order of size, starting with the smallest and working up to the largest. This is the fastest way to eliminate the number of outstanding accounts you have, thereby lowering the number of monthly fees you’re paying toward.

As you eliminate your balances, you’ll free up more of your monthly income to put toward your remaining debt (effectively “snowballing” the amount of funds you can use to pay down your loans). Plus, you get the mental win of seeing accounts zeroed out sooner.

For example, you may have the following estimated credit card balances and payments:

• $2,000 ($70 monthly minimum payment)
• $4,000 ($110 monthly minimum payment)
• $5,000 ($150 monthly minimum payment)

With the snowball method, you would pay off the $2,000 balance first. This would give you $70 more per month to throw at your next target, the $4,000 balance.

Debt avalanche method

The debt avalanche method favors targeting accounts with the highest APR (annual percentage rate) instead of the lowest balance. The idea is to knock out the cards that are costing you the most in interest. As an example, let’s say those aforementioned hypothetical credit card balances are subject to the following APRs:

• $2,000 (22% APR)
• $4,000 (19% APR)
• $5,000 (27% APR)

The avalanche method dictates that you focus on the $5,000 balance first, followed by the $2,000 balance. You won’t lower your number of outstanding balances as quickly, but you may save money on interest charges in the long run.

Debt consolidation

One of the biggest factors of your credit score is credit utilization. This is calculated based on the percentage of revolving credit that you’re currently using. For example, if you’ve got a total credit limit of $50,000 and you’re currently using $25,000 of it, your credit utilization is 50%.

Experts recommend keeping your credit utilization below 30% to avoid negative impact on your credit score. If you’ve got considerable debt, your credit utilization may be well above that—which can result in an unimpressive credit score.

However, if you’ve still got a good credit score (ideally 670+), you may opt for one of the below methods.

Debt consolidation loan

With a debt consolidation loan, you’ll receive a chunk of cash to repay multiple credit card and/or loan balances. This wipes out your current collection of monthly payments and replaces them with a single installment loan payment. Depending on the term length you choose, the new loan’s minimum payment may be a big one—but it can still be considerably less than the combined total of the many monthly payments you’re currently making.

And because debt consolidation loans are installment loans, the money you use to pay off your credit card will almost immediately improve your credit utilization. You may see a huge credit score increase in just a month or two.

Balance transfer credit card

You can also consolidate your debts by opening a balance transfer credit card and relocating your current debt onto it. Several credit cards come with 0% intro APR for a year or two. That can quite easily save you hundreds (even thousands) of dollars per year, depending on your amount of debt.

There are two caveats to this strategy:

1. You’ll often have to pay a balance transfer fee (typically up to 5% of the transfer amount).
2. You can only transfer as much as your balance transfer card’s credit limit can hold—including the balance transfer fee. For example, if you receive a credit limit of $15,000 and a balance transfer fee of 3%, you’ll only be able to move a maximum of $14,563 ($14,563 + 3% = $14,999).

Also, balance transfer credit cards typically require that applicants have good to excellent credit to qualify.

Increase your income with side hustles

One word of caution: While making more money is always the ideal, a plan to increase your income will ideally complement your current budget. For example, the goal isn’t to make more money so you can be more cavalier with your budgeting; rather, it’s to channel more money toward your balances.

From freelancing to reselling to rideshare to delivery platforms, there are numerous ways one may be able to make extra money. Often it takes just a few minutes to register with an app to launch a side hustle.

Negotiate directly with your creditors

Did you know that you might receive more favorable repayment terms simply by calling your lender and asking? You may receive a lower interest rate, a reduced monthly payment, even a temporary payment pause.

This doesn’t mean that banks are philanthropists—they want the money you owe them. If they think the most likely path to repayment is to give you a bit of a break, they’ve been known to do it.

Negotiating with your creditors doesn’t hurt your credit score. However, the bank may treat you differently after the call. Now that the lender knows you’re struggling, you may find your credit limits lowered (which can indirectly affect your credit score). The bank may also make a note on your credit report that they’ve given you some sort of hardship plan. This can be a red flag to other would-be lenders.

Get professional help

If you can see a way out of your current debt, there are professional services of varying degrees of severity to choose from.

Nonprofit credit counseling and debt management plans

With credit counseling, an experienced counselor will examine your situation and advise you of your best course of action. If necessary, they may suggest that you enroll in a debt management plan (DMP). This rolls your unsecured debts into a single payment, typically with reduced interest rates.

The act of enrolling in a DMP won’t itself hurt your credit score. However, you’re often required to close the credit cards you’re using the DMP to consolidate. This can negatively affect elements of your credit score, such as your average length of credit history and credit mix. Your credit utilization may also increase, as your total available credit will drop.

All to say, your credit score may drop temporarily—but it’s a small price to pay for getting your finances back on track.

Debt settlement

Debt settlement is more serious than a DMP. Instead of simply consolidating your debts into one feasible monthly payment, debt settlement involves negotiating with your creditors to pay back less than you owe. Debt settlement companies typically ask that you stop paying on your loans—effectively strongarming banks to the negotiating table.

This strategy wrecks your credit score. You’ll also likely receive aggressive collections calls and even lawsuits before you’re able to settle. Avoid this route if possible.

Bankruptcy

The last resort for those who can’t pay back their debts is bankruptcy. This can erase much of your unsecured debt, such as credit cards, some personal loans, and medical bills. It won’t make everything disappear, however (think tax debts, many student loans, child support, etc.)

Bankruptcy will blemish your credit report for up to 10 years. It can also drop your credit score by hundreds of points. You could even lose assets, such as personal property and home equity, to pay your creditors.

The takeaway

There are many tactics to getting out of debt, from the well-known “snowball” and “avalanche” methods to debt consolidation to debt management plans. No matter your specific financial situation, there’s likely a solution for you. None of them are easy (staying out of debt takes discipline enough, let alone digging yourself out of a hole), but with smart decision-making and stick-to-it-iveness, these strategies can help you make real progress.

Frequently asked questions