Get Out of Debt: A 7-Step Plan That Starts With One List

Michael Chen

Michael Chen writes about personal finance fundamentals. Bay Area-based · finance enthusiast for 15 years.

Visual representation of the voice · not a photographic portrait

Quick answer: List every debt with its balance, interest rate, and minimum payment. Keep paying all minimums on time, save a $500 to $1,000 cushion, and put every extra dollar on one debt at a time, either the highest rate or the smallest balance. If you can't cover the minimums, talk to a nonprofit credit counselor early.↗ Share on X

To get out of debt, start by writing down every debt you owe with its balance, interest rate, and minimum payment. Then build a bare-bones budget, keep paying every minimum on time, save a small emergency cushion, and send every extra dollar to one debt at a time, either the one with the highest interest rate (the "avalanche" method) or the smallest balance (the "snowball" method). If the minimums alone eat more than your budget can handle, call a nonprofit credit counselor before you fall behind. The rest of this article walks through each step with numbers you can copy.

This is general education, not personal financial advice. If you are facing collection lawsuits, wage garnishment, or are thinking about bankruptcy, talk to a qualified professional, such as a nonprofit credit counselor or a licensed attorney, before you act.

Step 1: How do you list your debts the right way?

READ ALSOCredit Card Debt and No Savings? Do These Steps in Order →Got a Debt Settlement Offer? What to Do Before You Pay →Credit Card Debt on Leave: Act Before You Fall Behind →

You cannot fix what you cannot see. Set aside one hour and make a simple table. Use your statements or log in to each account.

APR means annual percentage rate. It is the yearly cost of borrowing. A higher APR means the debt grows faster.

Also pull your free credit reports at AnnualCreditReport.com, the official site for the three credit bureaus. Look for debts you forgot about and errors, like an account that is not yours. You can dispute errors directly with the bureau.

Step 2: How do you find money in a tight budget?

Write down your take-home pay for the month. Then list your costs in this order:

1. Housing (rent or mortgage)

2. Utilities (power, water, heat)

3. Food

4. Transportation to get to work

5. Minimum payments on every debt

6. Everything else

The first four keep you housed, fed, and employed. Protect them first.

Now look at "everything else" and cut where you can, at least for a few months. Common places people find money:

• Streaming services and apps you rarely use
• Eating out and delivery
• Phone plan (prepaid plans are often cheaper)
• Car insurance (get quotes from other companies once a year)
• Bank fees (switch to an account with no monthly fee)

Even $100 to $200 a month freed up makes a real difference when it goes straight to debt.

Step 3: Why save a small emergency fund first?

READ ALSOClosed Credit Card Hurting Your Score? What to Do First →How to Pay Off Debt While Dealing With Unexpected Medical Bills →Pay Off Debt Without Hurting Your Credit: A 5-Step Order →

It sounds backwards to save while you owe money. But without a cushion, the next flat tire goes on the credit card, and you are back where you started.

Aim for a starter fund of $500 to $1,000. Keep it in a separate savings account so you are not tempted to spend it. Once it is in place, put everything extra toward debt. After your high-interest debt is gone, grow the fund toward three to six months of basic expenses.

Step 4: Avalanche or snowball, which method should you choose?

Both methods follow the same rule: pay the minimum on every debt, and put all extra money on one target debt. When that debt is paid off, roll its payment into the next one.

The only difference is the order.

How the "roll over" works in practice: say you have $200 extra per month. With the snowball, you pay $250 on the medical bill ($50 minimum + $200 extra). It is gone in about three months. Then you take that full $250 and add it to the $35 minimum on Credit card B, paying $285 a month there. Each payoff makes the next payment bigger.

The best method is the one you will stick with. If you are not sure, start with the avalanche on credit cards, since interest rates there are usually the highest.

Step 5: Can you lower your interest rates?

Lower interest means more of each payment goes to the actual balance. Try these options, in this order:

1. Call your credit card company and ask for a lower rate. Be polite and direct: "I've been a customer for X years. I'm working to pay this down. Can you lower my APR?" Some companies say yes, especially if you have a record of on-time payments. It costs nothing to ask.

2. Ask about hardship programs. If you lost income, many lenders have programs that temporarily lower rates or payments. Ask exactly what happens to your account and your credit if you join.

3. Consider a 0% balance transfer card, only if your credit is good and you have a plan. Read the details: there is usually a transfer fee (often a few percent of the balance), and the 0% rate ends after a set number of months. If you do not pay it off in time, the high rate comes back.

4. Consider a debt consolidation loan from a bank or credit union. This replaces several high-rate debts with one loan at a lower fixed rate. It only helps if the new rate is truly lower and you stop adding new charges to the cards.

Warning: moving debt around is not the same as paying it off. If you consolidate and then fill the cards back up, you end up with more debt than before.

Step 6: When should you get outside help?

Get help early if any of these is true:

• Your minimum payments are more than you can cover after basic needs.
• You are already 30 days or more behind.
• Debt collectors are calling.
• You are using one card to pay another.

Start with a nonprofit credit counseling agency. Look for one that is a member of the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). A counselor can review your budget, often at low or no cost, and may offer a debt management plan. In that plan, you make one monthly payment to the agency, which pays your creditors, often at reduced interest rates the agency negotiated.

Be careful with "debt settlement" or "debt relief" companies that charge fees and tell you to stop paying your bills. Stopping payments can hurt your credit badly and lead to late fees and lawsuits. The Federal Trade Commission warns consumers to watch for companies that charge fees before they settle any debt, or that claim they can make debt disappear.

If debt is overwhelming, a bankruptcy attorney can explain whether Chapter 7 or Chapter 13 bankruptcy applies to you. Many offer a free first consultation. Bankruptcy has serious long-term effects, so get real legal advice before deciding.

Step 7: How do you protect your credit score while paying off debt?

Your credit score affects what you pay for car loans, apartments, and sometimes insurance. While you pay down debt:

1. Never miss a payment. Payment history is the biggest factor in most credit scores. Set up automatic payments for at least the minimum on every account.

2. Lower your credit card balances. The share of your credit limit you use, called credit utilization, also matters a lot. Paying cards down usually helps your score.

3. Don't close old cards right away. Closing a card can raise your utilization and shorten your credit history. If a card has no annual fee, you can keep it open and unused.

4. Don't apply for lots of new credit. Each application can cause a small, temporary dip.

How long will it take to get out of debt?

It depends on how much you owe, your interest rates, and how much extra you can pay each month. A free online debt payoff calculator can show you a timeline. Enter each debt's balance, rate, and minimum payment, then try different extra amounts. You will see how adding even $50 more a month can shorten the timeline and reduce the total interest you pay.

Expect setbacks. A surprise bill may slow you down for a month. That is normal. Get back on the plan the next month.

Your next step

Tonight, open a notebook or a spreadsheet and fill in the debt table from Step 1 with every balance, APR, minimum payment, and due date you have. Then set up automatic minimum payments on each account so nothing is late. Once both are done, pick avalanche or snowball, choose your first target debt, and send it your first extra payment, even if it is only $25.

FAQ

Should I pay off debt or save money first?

Save a small starter emergency fund of $500 to $1,000 first, so surprise costs don't go back on a credit card. Then put extra money toward debt.

Is debt consolidation a good idea?

It can help if the new loan has a truly lower rate and you stop adding charges to your cards. If you fill the cards back up, you end up owing more. Compare the total cost before you sign.

Where can I get free or low-cost help with debt?

Look for a nonprofit credit counseling agency that belongs to the NFCC or FCAA. For lawsuits, garnishment, or bankruptcy questions, talk to a licensed attorney.

Educational content, not personalized financial advice. Sources cited where applicable.