Drowning in debt can be incredibly stressful, impacting both your finances and emotional well-being. But with the right strategies and some discipline, a debt-free future is closer than you think.
In this article, you’ll learn 7 practical steps to take charge of your finances immediately, along with mistakes to avoid when paying off debt, so you can become debt-free as quickly as possible.
1. Assess Your Debt Situation
Before diving headfirst into tackling the problem, it’s crucial to understand exactly where you stand by assessing your current debt situation.
List down every single debt you have
The first step to getting out of debt is to be brutally honest with yourself and face it head-on. Many people drastically underestimate how much debt they’re in, often turning a blind eye to the reality of their financial situation.
To get a clear picture, gather all your statements and create a master list of every debt you owe—credit cards, student loans, car loans, personal loans, medical bills, and even money you borrowed from your friends and family.
For each debt you’ve listed, write down these four crucial numbers:
- Current balance (exact number, no rounding up)
- Interest rate (yes, even if it’s scary)
- Minimum monthly payment
- Payment due date
Review your credit history
To truly understand your financial standing, you’ll want a crystal-clear overview of your credit situation. Start by pulling your credit report from annualcreditreport.com—this free resource can help you uncover forgotten debts and identify opportunities for negotiation down the line.
Take the time to carefully review the report for any errors or unfamiliar accounts—addressing any mistakes now could significantly improve your chances of qualifying for better interest rates when you decide to consolidate or refinance your debt.
Calculate your total debt
Now it’s time to add up every single debt you have to calculate the total amount. This can be intimidating if you have a lot of debt piled up, but knowing the exact number is crucial to reducing it each month.
Track this list clearly in a simple spreadsheet or your notes app. Just make sure you’ve got the key info for each debt: who you owe, how much you owe, the interest rate, minimum payment, and when it’s due. Make it a habit to update it at the end of each month to stay on top of your progress.
With these numbers laid out in front of you, you’ll have a clearer picture of your financial situation and a better understanding of how to begin chipping away at it.
If you’re still unsure, I have a detailed guide to help you uncover and track your debt, so you can proactively work toward paying it off.
2. Adjust Your Budget and Stick to It
With a clearer picture of your debt situation, it’s time to set some ground rules.
First things first—stop digging the hole deeper. That means no more piling on new debt, period. If you’re serious about getting out of debt, you have to make this your number one priority.
The most effective way to do so is by switching to an all-cash or debit-only system. This might involve taking drastic measures like cutting up your credit cards, deleting them from your online shopping accounts, or even freezing them in a block of ice—do whatever it takes to stop accumulating more debt. This helps you physically see your money leaving your wallet or account while limiting yourself to only spending what you have.
To stay on top of your budget, track every single dollar you spend for the next two weeks. Use your bank’s app or the notes app on your phone to record every expense. You might be surprised by where your money is actually going, and it will help you consciously decide what’s necessary and what’s not.
It also helps to look for quick wins to free up cash—pausing underutilized subscriptions, cancelling unused memberships, or opting to cook your own meals instead of ordering takeouts.
Remember this: don’t let your extra savings become an excuse for letting your spending creep back up. Every extra dollar you save should go directly into paying off your debts, helping you progress quickly toward becoming debt-free.
3. Choose a Debt Repayment Strategy Quickly
There are two proven methods for debt repayment: the Debt Snowball and the Debt Avalanche. They both work just fine, so pick one and start taking action immediately.
Debt Snowball Method
With the debt snowball method, you prioritize your debts from the smallest to the largest amount. Pay minimum payments on everything, then direct any extra money to your smallest debt. Once that is paid off, roll that payment into targeting your next smallest debt.
To learn how you can calculate your snowball debt, check out this guide on how you can calculate your snowball debt and work towards your debt payoff.
Debt Avalanche Method
With the debt avalanche method, you prioritize your debts from the highest to the lowest interest rate while paying minimums on everything else. This method will save you the most money mathematically since you’ll be knocking off the most expensive debts first.
Don’t waste time overanalyzing which method is “perfect” and delay taking real steps towards repaying your debt. The key is to choose the one that aligns with your personality.
If you’re someone who thrives on quick wins, go with the Snowball method. If you prefer tackling the biggest challenge headfirst to build momentum, choose the Avalanche method.
4. Negotiate Lower Interest Rates or Payments
One of the quickest ways to speed up your debt payoff is by slashing your interest rates. Many people don’t realize that negotiating with creditors is an option—but a simple 5-minute phone call could potentially save you up to thousands of dollars.
Start with your highest-interest credit cards and call the bank to request a lower rate. You’ll be surprised by how often they agree, especially if you’ve been making timely, regular payments. Don’t hesitate to bring up any better offers you’ve received—credit card companies are always eager to keep your business, and a little competition can work in your favor.
To negotiate your interest rate with your banks, you can use the script below:
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.”
If negotiating doesn’t work, consider exploring balance transfer credit cards that offer 0% interest for 12-18 months. This could give you a year or more of interest-free payments, providing you with a comfortable buffer to pay off your balance—as long as you complete your payments before the promotional period ends.
For other loans, such as car or personal loans, research current interest rates and evaluate if refinancing can offer you a better deal. Even a 2% reduction in the interest rate can help you save significantly across the lifespan of the loan.
This might take a bit of effort but don’t forget to document every conversation with your lenders. Note down the date, the representative’s name, and the key points discussed. If you agree on a lower rate, always ask for it in writing to make sure it’s locked in officially.
5. Consider Consolidating Your Debts
Another strategy towards managing your debt is debt consolidation. This means combining all your debts into a single loan with one monthly payment, ideally at a lower interest rate.
But before you jump into consolidating your debts, you’ll want to look into these considerations to evaluate if this strategy would work for your financial situation.
This strategy works best when:
- You have good credit (typically 670+ FICO score) and can qualify for better rates
- Your debts have high interest rates (like credit cards at 15%+ APR)
- You’re committed to not taking on new debt while paying off the consolidated loan
Do keep an eye out for these potential pitfalls:
- Don’t extend your loan term just to get a lower monthly payment because you’ll end up paying more in interest
- Avoid secured loans that put your home or car at risk unless you’re certain you can make the payments
- Be wary of companies charging high fees for consolidation services
Debt consolidation can be tricky, it only works if you’ve addressed the spending habits that got you into debt in the first place. Otherwise, you might risk accumulating new debts while paying off the consolidation loan.
To make a more informed decision, check out this in-depth article on the considerations you should think about before you consolidate your loans.
6. Increase Your Income
All the strategies above are aimed at helping you reduce spending. But at the end of the day, it can only go so far. If you want to get out of debt fast, adding extra income can significantly accelerate the progress.
Explore income-boosting strategies
Here are some topline ideas on how you can diversify your income stream so you can work towards becoming debt-free sooner:
- Side gigs: Focus on gigs that align with your skills to maximize your earnings and satisfaction.
- Freelancing: Sell your expertise (writing, graphic design, tutoring, etc.) on a project basis.
- Selling unused items: Declutter your home by selling items on eBay, Facebook Marketplace, or Craigslist.
- Asking for a raise: If you’re confident that you’ve been demonstrating value at work, research similar positions in your area and make a case for a pay raise.
- Turn hobbies into cash: Crafting, photography, or even fitness coaching could become viable income streams.
Make sure you redirect extra income to paying your debt
If you manage to increase your income, staying laser-focused on repaying your debt is crucial—it’s the best way to make steady progress and avoid the trap of lifestyle inflation.
If you want to explore more practical ways on how you can increase your income, feel free to check out my relevant articles to get you started:
7. Consult a Credit Counselor
As a last resort, if other strategies feel overwhelming and you’re still unsure how to tackle your debt, consulting a credit counselor can be a viable option.
A credit counselor can offer:
- Debt management plans (DMPs): Counselors can negotiate lower interest rates or combine debts into a single payment plan.
- Personalized advice: Counselors can help tailor a plan based on your unique financial situation.
- Budgeting support: Counselors can assist in creating sustainable spending plans that help you avoid future debt.
Taking this step can provide you with much-needed clarity and a concrete plan to repay your debt effectively.
Mistakes to Avoid When Paying Off Debt
Here are some common mistakes to avoid when you are in the process of paying off your debt:
1. Keeping the same old spending habits
To make significant progress in your debt repayment requires a mindset shift. To get out of debt, you can’t keep relying on credit cards for non-essentials or allowing your spending to spiral out of control.
Take Jennifer and Andrew for example. Despite having $4,600 in credit card debt, they continued spending hundreds on takeout and subscriptions. Once they acknowledged the urgency of their financial situation, they decided to cut back on dining out and managed to save $800 from their monthly expenses. These extra savings were then redirected toward repaying their debt.
Ramit: [00:53:29] So you told me that you were going to cut back how much on eating out?
Andrew: [00:53:40] I would say half.
Ramit: [00:53:42] Half. So you’re going to save 300 a month there?
Andrew: [00:53:45] Yeah.
Ramit: [00:53:46] Okay, good. That’s 300 there. Plus, you’re going to save how much on your subscriptions?
Andrew: [00:53:45] That was 45, I think.
Ramit: [00:53:56] Yeah. Let’s say 50. Let’s say 45. Forty five, and then, uh, there was how much for the groceries you’re going to save?
Jennifer: [00:54:04] I think we said 200 because is 50 a week.
Ramit: [00:54:06] Yeah, 200. That’s, uh, 2, 3, $545. Where else is the rest coming from? How do you cut 800 a month off your guilt-free spending?
Ramit: [00:54:27] Gosh, if you got that to 1200, I’m just going to tell you, you would have over a $1,000 a month extra money. Is that mind blowing to anybody here?
Andrew: [00:54:39] That would be fantastic.
When you’re in debt, how you manage your money needs to change. A clear debt repayment strategy is key to getting on the right track, but beyond that, you’ll also need a practical budget and a sustainable spending plan.
Changing habits is never easy, and there will be an adjustment period, but in the long run, it’s worth it to regain your financial freedom.
2. Not asking for help when you need it
Many people struggle with large amounts of debt, yet they avoid asking for help because they feel embarrassed or are afraid of being judged. But trying to handle debt alone can often make things worse.
Christina and Noah faced this exact challenge. They felt overwhelmed, uncertain if they were managing their money correctly, and were constantly worried about overspending.
[00:07:14] Ramit: Is fear your motivator?
[00:07:16] Christina: Yes. Because I’m the driver, I feel like. I feel like I’m off in the driver’s seat.
[00:07:24] Ramit: And if you’re the driver, what is he?
[00:07:26] Christina: He’s the passenger.
[00:07:33] Ramit: If you’re deciding to take the metaphor at its face value, why are we here? Because shouldn’t the driver decide where you’re going to go?
[00:07:41] Christina: I mentally wonder though, like, am I making bad decisions? Is this normal? Is everyone spending this much money of their income in their paycheck? It feels heavy. It feels like we’re spending too much. And maybe other people are cool with that and just overspending their budget and not saving and investing a ton, but it feels like we’re doing something wrong.
If you find yourself in a similar situation to Christina and Noah, where you feel anxious and uncertain about managing your debt—it’s time to take action and regain control by asking for help.
One of the first steps you can take is reaching out to your lenders to negotiate lower interest rates or better repayment terms. This conversation can help shift your debt repayment to a much more manageable situation.
If you’re still feeling lost and need additional support, speaking with a nonprofit credit counselor can provide valuable guidance. Many people hesitate to make this call, often feeling embarrassed to admit that they’re struggling. But the truth is, asking for help isn’t a sign of failure—it’s a crucial step toward taking ownership of your financial situation and learning how to manage it better.
3. Making only the minimum payments
Paying only the minimum payments might seem like you’re staying afloat, but in reality, you are just prolonging your debt—and costing you thousands in interest.
Amy and Tori discovered that if they had continued making just the minimum payments, they would be in their 70s before they could become debt-free.
Ramit: [01:02:50] All right. Have you ever calculated how long that’s going to take to pay it off?
Amy: [01:02:56] I think I saw something sickening like 15 years or something crazy.
Ramit: [01:03:01] 15 years. Yeah, that’s crazy. Let’s look it up. It will take you 530. That’s so many months. I have to pull out a calculator. 534 months divided by 12. Amy, read the rest of this.
Amy: [01:03:12] With a minimum payment, it will take you 534 months to be rid of your debt. In that time, you’ll pay 124,319 and 7 cents in interest.
Ramit: [01:03:25] 534 months is how many years, Amy?
Amy: [01:03:29] 44.
Ramit: [01:03:35] So how old will both of you be in 44 years when you’re finally debt free?
Amy: [01:03:40] 72.
Ramit: [01:03:43] Wow.
Tori: [01:03:46] And I’ll be 71.
To avoid falling into this cycle of prolonged repayment and excessive interest, focus on paying more than the minimum on at least one of your debts.
You can start with the smallest balance for quick wins, or target the highest-interest debt to save the most money. Even adding a small amount–like $50 or $100 extra per month–can help you significantly shorten your repayment timeline. Over time, those small actions will compound, saving you thousands and bringing you closer to financial freedom.
How To Get Out Of Debt Fast (and start living your Rich Life)
A life of debt doesn’t have to define you. If you feel like you are stuck in a never-ending cycle of payments and interest, remember that breaking free starts with taking action. Confront your debt head-on, build a strategy that works for you, and stay committed to taking purposeful steps towards your goal. With a clear plan and discipline, you can reclaim your financial freedom and achieve a debt-free future.
Getting out of debt isn’t just about the numbers—it’s about creating the freedom to live the life you truly want. From here, you can take steps not just to escape debt but to build a future that aligns with your Rich Life.
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