4 Important Steps to Get Out of Debt


Living with debt can be stressful, and once you are in debt, it’s hard to get out of debt. The average household has about $132,000 in debt, which includes mortgages, and the average household with credit card debt has balances totaling about $16,000, according to the American Household Credit Card Debt Study.

When you don’t have enough money to pay the bills and you continue to accumulate debt, it becomes a heavy burden. Getting out of debt and staying out of debt is not an easy thing to do. If you want to get out of debt, it’s going to take sacrifice, discipline and hard work, but in the end it will be worth it. Once you get out of debt, that burden of debt hanging over you will be gone, and you’ll have a financial peace of mind. You’ll also be able to take that money that was once going toward debt and instead use it to do things that are important to you and your family, because life is about enjoying things that matter most.

Here are four important steps to help you get out of debt so you can put yourself in a better financial position. This is your year to get your finances in control!

1. Fix the Root of the Problem

The only way to take control of your financial life is to fix the root of the problem, which is to change your spending habit and to stop living beyond your means. Avoid adding to your debt and don’t buy things that you don’t need. You won’t be able to get out of debt if you keep adding to it. If you change your spending behavior, you’ll be able to live without financial stress and have a much richer life.

In order to get out of debt, you need to get the whole family on board. If you and your spouse aren’t both committed to working together to get out of debt, then it’s not going to work. You both have to want it. This Total Money Makeover book by Dave Ramsey has helped thousands of families get out of debt and has given them the tools needed to get their finances in order. I recommend that if you are serious about getting out of debt, then read this book.

Additionally, telling your kids about your goal to get out of debt will help so they understand why you won’t be able to spend extra money on activities or outings at this time. Once you are out of debt, then you can save up and do some of those things you’ve wanted to do as a family. But remember, you don’t have to spend lots of money to do fun things together as a family.

Once you get real about your debt, then you need to figure out how much debt you really have.

2. Get Organized & Figure Out How Much Debt You Have

Organize your documents in an order that is going to help you know how much debt you owe. If the documents are all over the house in piles, you won’t know what debt you have. Use a system that will work for you, which could be something such as a file folder system with tabs. Do this with your spouse so you both understand the system.

To determine how much debt you really have, take your documents, then using a Word document or Excel spreadsheet, write down all the debt you have. Include the following in the spreadsheet: what the debt is, the total amount you owe, the annual percentage rate (APR), and how much you pay each month.

Now, rank your debt from the highest to lowest interest rate. If you have a few smaller debts, even if they have a low interest rate, place them on the list first and pay them off quickly. This will give you confidence and help you keep going. Then pay off the highest interest rate first, and use a debt snowball to get rid of your debt.

Here is an example of how to use a debt snowball if you had the following debts:

Debt 1: Store Credit Card      $400                Interest Rate: 7%        Minimum payment: $25

Debt 2: Credit Card                $4,000             Interest Rate: 14%      Minimum payment: $70

Debt 3: Car Loan                    $10,000           Interest Rate: 4%        Minimum payment: $250

Debt 4: Student Loan             $15,000           Interest Rate: 3%        Minimum payment: $150

First, pay the minimum payments on all of the debts each month, then start to get rid of them one by one. For this example, we’ll say that you find an extra $300 a month in your budget by earning extra money from a side job and cutting your discretionary income.

Note: To pay down your debt sooner, look for jobs to earn extra money. This may be watching children, delivering newspapers or cleaning houses. Also, look into selling items around the house by determining what you can live without, and then hold a yard sale or sell the items online. 

Since the first debt is small, get it paid off quickly. For Debt 1, you’ll pay $325 toward it (this is the $300 extra income you find + $25 minimum payment) and you’ll have it paid off within less than 2 months. Now take that $325 and put it toward Debt 2. When you do that you’ll be paying $395 toward Debt 2 each month ($325 + $70 minimum payment). Once Debt 2 is paid off, then take the $395 and put it toward Debt 3 so you’ll pay $645 toward it each month ($395 + $250 minimum payment). Then once you pay off Debt 3, you’ll pay $795 to Debt 4 each month ($645 + $150 minimum payment) until it’s paid off.

With hard work and sacrifice, you will get your debt paid off. It’s possible, and you can do it!


3. Review Your Plan Regularly

If you don’t regularly review your plan to get out of debt and check to see how you are doing, it’s not going to happen. Schedule a set time each week with your spouse to review how you are doing and if there are areas of your spending you could do better.

Just like if you set a goal to lose weight, you wouldn’t just set the goal and then not work out or review how you are doing. You would work out multiple times during the week and check your progress regularly. It’s the same with your goal to get out of debt. Don’t set the goal to get out of debt and then hope every month you reach your goal and don’t overspend. You need to set smaller goals along the way that are doable and review your progress regularly such as daily or weekly.

The more often you look at your plan when you are getting out of debt the more likely you’ll be to not overspend or get off track.


4. Save Money & Cut Expenses

To help change your spending habit and live within your means, you’ll need to create a realistic monthly budget for your expenses. List all monthly bills and necessities, and make sure they are covered by your monthly income. Focus on the things you need and not the things you want or that are nice to have.

Prioritize which expenses are most important to you to keep, then decide what you can get rid of such as cable or additions on your cell phone. Try to save money on utilities such as the electricity and gas bills by turning off lights and adjusting the thermostat. Cut down on your discretionary expenses. This includes dining out, buying new clothes when you don’t need them, taking pricey vacations, and other unnecessary expenditures.

Learn to use cash instead of credit cards. From each paycheck, take out cash and place it in envelopes specifically listed as mortgage, utilities, grocery, etc. Have one primary credit card and use it only for emergencies or major necessities. Put your credit card in a safe place, not available for everyday use.

Allow only the money remaining after the bills are paid to be spent elsewhere. With any extra money you have, use it toward paying off debt until it’s gone. Even if it’s only $5 or $10 extra, it adds up and will help you to pay off your debt sooner.

You’ll also want to read these 6 Ways to Save Money & Increase Your Savings This Year.

Be sure to also contact your creditors and try to work out repayment plans and to bring down high interest rates. Many creditors are willing to work with you in a manner that will help them get their money without having to resort to debt collectors.

What tips have helped you get out of debt?


And here are other articles you might like to read:


How to Stop Living Paycheck to Paycheck 5 Tips5 Tips How to Stop Living Paycheck to Paycheck and Start Saving

Set a Budget

5 Tips on How to Set a Budget

Maintain a Budget

5 Tips on How to Maintain a Budget

6 Ways to Save Money & Increase Savings This Year6 Ways to Save Money & Increase Your Savings This Year

how-i-grocery-shop-thumbnailHow I Grocery Shop and Spend Less Than $400 a Month on Groceries


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  1. My mom loves to coupon and saves hundreds of dollars doing it. I need to start doing that as well! It helps then to plan your grocery trips and what you get there and that can cut down on huge expenses. I find that when I go to the grocery store I end up buying a lot more than I planned for.

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