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How to get out of debt fast (…even if you’re dead broke)

Whether you're battling credit cards or student loans, I'll show you how to pay off your debt fast with the 5-step system from my NYT best-selling book.

Ramit Sethi

Getting out of debt isn’t easy — but it is possible, even if you have no money, no assets, and no idea how to start. Check out these tweets from people who followed my advice and got rid of their debt forever:

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Today, I’m going to teach you my five-step system for quickly paying off debt so you can join them too.

How to get out of debt fast: My 5-step system

Step 1: Use this tool to find out how much debt you REALLY have

Step 2: Choose your “plan of attack” for paying off debt

Step 3: Freeze your credit card debt — literally — to stop it from growing

Step 4: Follow this script to negotiate a lower interest rate (Saves you THOUSANDS)

Step 5: Tap into your “Hidden Income” to drum up an extra $1,000+/month

Bonus step: Turbocharge your debt payments with my favorite resource

Step 1: Use this tool to find out how much debt you REALLY have

You wouldn’t believe how much money people waste by skipping this step and blindly paying off any bills that come in with no strategic plan.

This boils down to the fact that people feel guilty about their debt. They’d rather bury their heads in the sand than look at the reality of the situation and do something about it.

This is exactly what credit card/loan companies want — for you to hide from your statement every month and just blindly send them the minimum payment thinking you’re getting out of your debt. They LOVE it when you do that.

The reality is that minimum payments dig your hole even deeper.

It might be painful to learn the truth but you have to bite the bullet. Then you’ll see that it’s not hard to end this bad habit. In fact, you can get the credit card companies to help you. Just look at the back of your credit cards for their number, call them, and ask them for the amount of debt you owe, the APR, and the monthly minimum payment on the card.

I challenge you now to step up and own your debt. You can do the hard work now, or the impossible work later.

Use this tool to track it (it’s the second link on this list). The chart looks like this:

credit card debt chart 1 1

It’ll help you find out how much you owe to each company and what your interest rates are.

Stop right now and do this.

Done?

Congrats! Taking the first step is one of the hardest parts — now you’re well on your way to a Rich Life.

If your total debt number seems high, remember two things:

  1. There is a large group of people with MORE debt than you.
  2. From this day that number is only going to go DOWN. This is the beginning of the end.

Once you know how much you owe, the next step in learning how to get out of debt is …

Step 2: Choose your “plan of attack” for paying off debt

Once you know exactly how much you owe, you’re ready to strategically attack your debt.

To do this, you need to prioritize which of your debts you’re going to pay off first — whether it be your credit card, student loans, whatever — based on the interest rate.

To get out of debt the absolute fastest, you’re going to want to pay off the loan with the highest interest rate first.

For example, let’s say Credit Card A has a balance of $1,000 and a 12% interest rate, and Credit Card B has $1,500 at 6% interest. You put down $150 total every month, paying the minimum payment (3%) on one and whatever’s left on the other. You’re going to save more money by eliminating Credit Card A first ($147 in total interest) vs Card B ($188).

Once you’ve decided what you should prioritize, it’s time to come up with a plan of attack.

When it comes to your student loans, you can actually save thousands of dollars each year — by paying down your debt more each month.

Yes, you read that right. You can save money by spending MORE.

Let’s say you have a $10,000 student loan, at a 6.8% interest rate, and a 10-year repayment period.

If you go with the standard monthly payment, you’ll pay around $115/month.

But check out how much you can save per year if you paid just $100 more each month:

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Like I said before, paying the minimum digs you into a bigger hole. Even $20 more per month can save you huge amounts of money.

I’ve written about this before and linked to two great articles regarding the tactic. If you can contribute even a small amount more per month, the benefits can be significant. See for yourself by calculating your savings using this calculator.

Alternatively, you can use the “debt snowball” method, which I explain here (at around 2:00). Mathematically it isn’t the fastest method, but it’s designed to make you feel GREAT about making payments:

Step 3: Freeze your credit card debt — literally — to stop it from growing

If you ever expect to pay down your debt, you can’t add more to it.

That’s why you need to do the following things:

  1. Take out your wallet.
  2. Dump out all your credit cards.
  3. Mail them all to Antarctica.

Well, maybe you don’t have to be that extreme … but the point is to remove all temptation of ever using your credit cards again until you’re out of debt.

Here’s my favorite tip: plunge your cards into a bowl of water and shove it all into your freezer.

Seriously.

Once you literally freeze your credit, you’ll have to chip away at a massive block of ice in order to get it back — giving you time to think about whether or not you want to go through with whatever purchase you were going to make.

Alternatively, you can lock them in a safe or have a friend / parent / sibling / whoever-you-trust hold on to them for you. As long as you’re not adding more to your credit card debt, any method is good.

Step 4: Follow this script to negotiate a lower interest rate (saves you THOUSANDS)

Not many people realize this, but you can actually save over $1,000 in interest with a single five-minute phone call.

Through simple negotiations, you can lower the APR on your credit card and put thousands of dollars back into your pocket.

I LOVE negotiating interest rates.

It can be crazy simple too — in fact, here’s a word-for-word script that many of my readers have used already to lower their interest rates:

YOU: “Hi, I’m going to be paying off my credit card debt more aggressively beginning next week, and I’d like to lower my credit card’s interest rate.”

CC REP: “Uh, why?”

YOU: “I’ve decided to be more aggressive about paying off my debt, and that’s why I’d like to lower the interest rate I’m paying. Other cards are offering me rates at half what you’re offering. Can you lower my rate by 50% or only 40%?”

CC REP: “Hmmm … After reviewing your account, I’m afraid we can’t offer you a lower interest rate.”

YOU: “As I mentioned before, other credit cards are offering me zero percent introductory rates for 12 months, as well as APRs that are half what you’re offering. I’ve been a customer for XX years and I’d prefer not to switch my balance over to a lower-interest card. Can you match the other credit card rates, or can you at least go any lower?”

CC REP: “I see … Hmm, let me pull something up here. Fortunately, the system is suddenly letting me offer you a reduced APR. That is effective immediately.”

It’s really that simple to save money in five minutes.

Make the call, and if you’re successful, do two things:

  1. Celebrate your accomplishment (this is a big deal).
  2. Make sure to adjust your debt chart from step one. You get to chop that big ugly interest rate down and lower your monthly payments.

Repeat this process for any other cards you can, and then move on to my favorite step.

Negotiate the impossible: How to save big on student loan debt

If you find that no matter how you run the number you’re not going to be able to pay your student loans off in any reasonable amount of time, it’s time to call your lender.

Look at the phone number on that monthly bill staring you down. Call them up and ask for their advice.

Seriously, I can’t emphasize this enough. Your lenders have heard it ALL, from “I can’t pay this month” to “I have five different loans and want to consolidate them.”

For your purposes, ask the following:

  • “What would happen if I paid $100 more per month?” (Substitute any number that’s right for you.)
  • “What would happen if I changed the timeline of the loan from five years to 15 years?”
  • If you’re looking for a job, you might ask, “What if I’m looking for a job and can’t afford to pay for the next three months?”

Your lender has answers to all these questions — and chances are they can help you find a better way to structure your payment. Typically, they’ll help you by changing the monthly payment or the timeline. Just think: With that one call you could save thousands of dollars.

Step 5: Tap into your “Hidden Income” to drum up an extra $1,000+/month

If you’ve followed along this far, you’re probably thinking, “This is great and all, but where do I get the money to pay down all these bills?”

I recommend four things:

  1. Use the cash you’ve freed up from Step 4
  2. Use money you have from your Conscious Spending Plan (this is how my friend spends over $21,000 a year on going out)
  3. Tap into Hidden Income
  4. Earn more money

I’ve already explained how to get cash from lowering your interest rates and you can learn more about creating a Conscious Spending Plan here.

Now, I want to show you how to get money with methods that’ll push your self-development to the next level and build a foundation for your Rich Life.

Tapping into Hidden Income

Instead of strict budgets or extreme frugality, I prefer to cut costs mercilessly on everyday bills. These are things like your cell phone, car insurance, and other monthly expenses.

Saving money on these everyday items is an easy way to free up cash to put toward your debt. The cool thing is, we can show you how to save $1,000 — without cutting back on the things you love — like these people did:

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Just check out my Save $1,000 in a Month Challenge here.

It’s a great way to focus in on your willpower and expand your knowledge on how you spend money.

Earn more money

I’ve always believed that there’s a limit to how much you can save but no limit to how much you can earn.

What does that have to do with paying off debt? Well, imagine having an extra $1,000/month (or more) that you could put toward your bills.

The best part: it’s far easier to earn $1,000 than to slash $1,000 from your budget.

Just a few examples of ways to earn more money:

Whatever you choose, the rewards can be huge and make a significant dent in your debt today.

Getting out of debt quickly is one of the best financial decisions you’ll ever make.

And earning more money is the secret weapon for paying down your debt as fast as possible.

Bonus: Turbocharge your debt payments with my favorite resource

Download a free copy of my Ultimate Guide to Making Money to learn my best strategies for creating multiple income streams, starting a business, and increasing your income by thousands of dollars a year.

Just enter your name and email below to get instant access to the Ultimate Guide to Making Money. The strategies in this guide could shave YEARS off your journey to get out of debt:

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16 Comments

 
  1. Keisha Blair

    Good article! Getting out of debt requires discipline and focus, and sometimes, it becomes a never-ending cycle when we keep accumulating things that we "need" and then we start piling on more debt (even though were trying to get out of debt). I recently posted an article where I discuss, student loan debt and finding creative ways of paying it off. Plus, there so many reasons to have debt reduction as a worthwhile goal. Life is unpredictable and you don"t want to leave behind debt for your loved ones to have to deal with, if the unthinkable happens. Here's a link to my story:
    https://journal.thriveglobal.com/my-husband-died-at-age-34-here-are-40-life-lessons-ive-learn-t-17b102935efe

  2. Greenbacks Magnet

    I agree. When I did my own research after reading other studies and books, I found that credit cards are the pebble in your financial shoe. If you can get rid of credit card debt, then you have a shot at being rich.

    Thanks,
    GBM

  3. Angela

    Inspired by this article, I just called my phone service provider and car insurance company and used the script in Step 4…. two quick calls for a savings of $380 per year, easy as pie. Thanks for the inspiration!

  4. Sam

    Very much agree on calculating the savings of making additional debt payments. I did this when I was paying off my student loans and my car and it was a huge motivating factor for me.

    My second piece of advice would be to consider moving back in with your parents for a year or two after college. Obviously it isn't feasible for everyone and it ain't sexy, but it focuses on a big win: avoiding the largest expense for most people. My parents couldn't afford to contribute very much to my college education, but were happy to let me move back in rent free for a short period of time and it saved me thousands of dollars in rent and interest.

  5. Nicholas

    Ive gone thru this article and the steps in the book to understand where i stand and options for paying off my student loan debt.

    I have quite a bit in collections with the fact that it's about half of my sum total. Roughly, 75 – 80k. After a few phones calls of understanding where I am and options available. Most of my collection debt can be settled for a fraction of the total to give me a quick win.

    I'm pulling one debt out of default and slowing building up my credit with a secured card.

    I know this is small now, though with systems in place for earning more and finding my proftibale idea. This year for me is going to explode.

    I will take a hit for now on the credit score by settling with collections short term, though long term I can bounce back faster by use of my secured card and making on time payments.

    My current tasks for earning more:
    Salary negotation course
    The finishers formula
    Earn1k

    I currently work a full time job and a part time job on top of this.

    The hardest part was learning how much I owed. Then asking for options made it easier for the conversation to continue, and i smilied knowing thst i can tackle this with the lessons from Ramit and his courses.

  6. Kim

    In 2017, I started to take paying off my credit card debt seriously. I got You Need a Budget and it changed the way I looked at my bank account. As Ramit says in the article, I ruthlessly cut out bills, subscriptions, and prioritized my spending. I stopped saying “I can’t afford that” and instead said “I’m not prioritizing that right now.”
    I transferred my balance to a 0% APR credit card and paid it down as aggressively as possible. I took a small break while saving for my wedding, but as of this month, I’m credit card debt free.
    I never did any of that extreme frugality stuff and I never started a side gig. I used the same amount I was making before. Now I have an extra $2,000 a month to put toward student loans, but part of that is being used to save up my emergency fund. Again, no change in my income. No extreme budgeting.
    It’s all about knowing where your money is going and knowing what your priorities are.

  7. AJ

    I paid off $20k in student loans in 10 years, while making only $12-16k/year. How??

    1. I didn't take on any new debt during that time. I paid my credit card bill in full every month. If I couldn't afford a car, I went without.

    2. I paid my loan payment on time every month, resulting in a lower interest rate.

    3. Rather than put my loan into deferment like any normal human with my low income, I simply found the money. I rented a living room from a college student (she had the bedroom)… when I was 27… and paid AHEAD on my principal.

    This is not a Ramit-approved strategy, nor one that I recommend for most people. I basically didn't have any fun in my 20s. But for me it was worth it because I HATE being in debt. Now I'm debt-free, and while my older & better-paid colleagues complain about student loans, I have savings, spendings, retirement, and I'm starting a business on the side.

  8. Tony

    Lots of great info in here. I have been using all of these strategies to aggressively pay off my student loan debt. The main points that have worked the best for me are freezing your debt and earning more. In the 2.5 years that I have been paying down my massive ($206k) student loans, I have paid $111,832. The biggest part was taking control of my career, getting promotions and raises, and being vigilant about what I spend money on. As a side note during this time I have saved a $10k emergency fund and paid cash for a 2-week honeymoon trip to Japan.

    Following the steps in the article will be the first way to start conquering your debt. Also, remember there is someone else out there that has more debt than you and the sooner you start the sooner you'll be done.

  9. Brian

    I essentially used your steps. I wholeheartedly agree on the need to increase income. I never felt deprived but instead on gratitude each step of getting out of debt, spent money on what truly brought, and ruthlessly avoided lifestyle inflation by putting all new income toward the debt. Now that I'm debt free I've been able to shift the debt payments toward paying for my children's college, my future retirement, and investment in my own business. It's possible.

  10. Christy

    I paid off my student loans just two years after I graduated. In addition to all the great advice Ramit gave, I recommend paying extra as soon as you have the money. If I got an extra $100 from a side job I would immediately go make a loan payment. It was not uncommon for me to make 4-5 payments a month on my debt because I knew if the money sat in my acocunt it would be eaten up by some unnecessary expense. I also made a chart that hung on my fridge so I could have a visual of how much I had already paid. This was extremely motivating for me.

    Being debt free has given us the freedom to live in the location we want and be ultra selective about the jobs we take. It is worth the hard work!

  11. Gabi

    I can tell you that this plan does work, sorry I didn't learn it from Ramit but it's what most "financial advisors" will tell you to do. I had a lot of credit card debt coming out of college.. I also fell victim to the "transfer your credit card balance for zero-interest" trick.. Yes, I still have a mortgage but have not had credit card debt, or a car payment for 15 years. I also now have plenty of savings (so if I wanted to take an extravagant vacation with my husband, we can), a retirement plan, and education funds for my kids. I am not "rich", but learned how to put these things on automatic… it works!

  12. Ricky

    I don't normally ever post comments, but I owe it to anyone drowning in credit card debt like I was. First of all, this works because it's just math. But more importantly, inside of TWO MONTHS of getting on board, I almost didn't even worry about my debt anymore. Let me explain.

    First, I set up my conscious spending plan to pay down as much of my credit card debt as I could while also having my money diverting to my savings buckets for the things I wanted and needed. Buckets like money to take a trip, clothes, the "oh snap" fund for little emergencies that always come up, plus a buffer fund so in case I had a light month a work, I wouldn't have to touch my credit card. I also made sure that I gave myself a realistic amount of casual spending money from each paycheck. Since I have inconsistent income, I set these numbers all based on the MINIMUM I could guarantee to make any given month, but made sure to have a plan for where money above that would go. For me, it was simple, 40% of the extra went towards my debt, another 40% of the extra went into my buffer fund, and the last 20% went into my pocket as guilt-free "walking around money" to spend on whatever I wanted.

    Now here's what's amazing : Within two months, even though I'd only paid it down a few hundred dollars out of the $10,000 I owed, my credit card debt stopped being a source of stress. I knew that in a few months, I'd have enough in my travel account to take a trip that I was worried I was going to have to cancel. I knew that the things were important were going to be taken care of as long as I stayed with the plan. At that point, waiting for my credit card debt to reach zero was just a technicality. It no longer made me feel like I was trapped. One kicker was that I had an account set up to save up for all those little emergencies life throws your way, which meant that even though a snag would come up, I wouldn't have to see the number in my checking account go down or watch my credit card bill go up. I felt about as emotional at those snags as I do when seeing the water bill show up.

    So if you're drowning in debt, just make the plan and trust the process.

  13. Tony

    Sometimes it is worth getting a consolidation loan. I had 7000 in credit card debt I was struggling to pay at 14% interest. I asked the bank for a loan to cover it, and got a 5 year loan at 2% interest, which was much more manageable. I then overpaid when I had money available, and it was paid off in 2 years.

  14. DL

    Great advice. I accomplished my goal of being debt-free at 30 years old (aside from my mortgage). I have additional advice to supplement Step 2 in your article, and I think this is something you've said before: AUTOMATE EVERYTHING. I set up separate checking accounts for recurring bills (incl payoff of debt) vs discretionary spending, and split my paychecks accordingly via direct deposit. This way I never "saw" the money that was used for recurring automatic payments.

  15. Michal

    Great article! Found lots of useful information within the financial sector. Hoping to see more articles like that 🙂 I recommend visiting https://houseofbanks.com/debt/ to read more about how to get out of debt.

  16. Colleen

    I'm new to this paying-down-credit-card-debt thing because, like you, I hate debt and always paid it off every month. Unfortunately, a job loss has made that impossible right now, and despite cutting our spending considerably we have still amassed $20k in credit card debt. I remembered this script from your book and I was excited to try it, but when I researched other credit card rates to have in my back pocket for the call, I realized these rates were starting in the range my APR already was (14.24%), and some even higher. How can I adjust my script to still get them to lower my APR?