How to Get Out of Debt: A 7-Step Plan for Real Beginners

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, stop adding new ones, build a small emergency fund, and send all extra money to one debt at a time while paying minimums on the rest. Choose smallest balance first (snowball) or highest rate first (avalanche). If you can't cover minimums, contact a nonprofit credit counselor.↗ Share on X

To get out of debt, list every debt you owe, stop adding new debt, build a small cash cushion, and then put every extra dollar toward one debt at a time while paying the minimum on the rest. Most people use one of two orders: smallest balance first (the "snowball") or highest interest rate first (the "avalanche"). The plan below walks you through seven steps, in plain language, with what to do if you can't cover even the minimums.

This is general information, not personal financial or legal advice. If you are facing lawsuits, wage garnishment, or foreclosure, speak with a nonprofit credit counselor or a licensed attorney as soon as you can.

Step 1: How do you find out exactly what you owe?

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You can't fix what you can't see. Many people avoid this step because it feels scary, but it's usually less scary on paper than in your head.

1. Gather your latest statements: credit cards, car loan, student loans, medical bills, personal loans, buy now pay later plans, and money owed to family.

2. Get your free credit reports at AnnualCreditReport.com. It's the official free site. Reports can show debts you forgot about.

3. Write everything in one table like this:

These numbers are just an example. APR means the yearly interest rate the lender charges you. You'll find it on each statement.

Step 2: How do you stop the debt from growing?

Paying debt while still adding new charges is like bailing water from a boat with a hole in it.

• Take the cards out of your wallet. Remove saved cards from shopping apps and websites too.
• Don't close old cards right away without thinking it through. Closing accounts can affect your credit score. Just stop using them.
• Pause "buy now, pay later" offers. They are easy to stack up and easy to forget.
• Switch to debit or cash for daily spending for now.

Step 3: Why build a small emergency fund first?

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It sounds backward to save while you owe money. But without any cash, the next flat tire goes straight back onto a credit card and the cycle continues.

Aim for a small starter fund first. Many people start with a few hundred dollars up to about $1,000, depending on their income. Keep it in a separate savings account and use it only for real emergencies. Once your debts are gone, you can grow it to cover several months of expenses.

Step 4: How do you find extra money for debt?

Your extra payment is what makes the plan work. Look in two places.

Spend less:

• Cancel subscriptions you don't use.
• Call your phone, internet, and insurance companies and ask for a lower rate.
• Plan meals and cook more at home.
• Pause non-essential shopping for a few months.

Earn more:

• Ask for extra shifts or overtime if your job allows it.
• Sell things you don't use.
• Consider a short-term side job, like pet sitting or deliveries. Be wary of any "opportunity" that asks you to pay money upfront.

Use windfalls: tax refunds, bonuses, and cash gifts can go straight to debt. Even putting half of each one toward debt speeds things up.

Write down the extra amount you can commit each month. Even $50 matters.

Step 5: Snowball or avalanche, which one fits you?

Both methods follow the same rule: pay the minimum on everything, and send all extra money to one target debt. When that one is paid off, move its full payment to the next debt. The payment "rolls" and gets bigger each time.

The difference is which debt you attack first:

Using the example table from Step 1:

• Snowball order: Medical bill ($450) → Store card ($600) → Visa ($3,200) → Car loan ($9,000)
• Avalanche order: Store card (28%) → Visa (22%) → Car loan (7%) → Medical bill (0%)

There's no wrong choice. The best method is the one you will actually stick with. If you're unsure, try the snowball for the first debt or two, then decide.

Step 6: Can you lower your interest rates?

Lower interest means more of each payment goes to the actual balance. A few options to explore:

1. Call your credit card company. Ask directly: "Can you lower my interest rate?" It doesn't always work, but asking is free. If you've been paying on time, mention it.

2. Ask about hardship programs. Many lenders offer temporary lower payments or rates if you've lost income. You usually have to ask.

3. Balance transfer cards. Some cards offer a low or 0% introductory rate for moving debt over. Read the fine print: there's usually a transfer fee, and the rate jumps when the offer ends. This only helps if you can pay the balance before then and you don't run up the old card again.

4. Debt consolidation loan. This combines several debts into one loan, ideally with a lower rate. Compare the total cost, not only the monthly payment. A lower payment spread over more years can cost you more overall.

5. Nonprofit debt management plan. A credit counseling agency may be able to arrange lower rates with your card companies. You make one monthly payment to the agency, and it pays your creditors.

Be very careful with debt settlement companies that say they can cut your debt in half for a fee. They often tell you to stop paying your bills, which can damage your credit, add late fees, and lead to lawsuits. The Federal Trade Commission warns consumers about these risks.

Step 7: How do you stay on track until the last payment?

Getting out of debt usually takes months or years. These habits help you keep going:

• Set up autopay for every minimum payment, so you never miss one. Pay your target debt extra by hand, so you see the progress.
• Track your total debt once a month. Write the new number on your list or on a paper chart on the fridge.
• Celebrate each debt you pay off, in a small, cheap way.
• Review your budget every month. Income and bills change. Adjust your extra payment when they do.
• Expect setbacks. If an emergency hits, use your starter fund, pause the extra payments, refill the fund, and then restart. That's not failure. It's the plan working.

What if you can't pay even the minimums?

If your income doesn't cover your minimum payments plus basic living costs, the order of priority changes:

1. Protect the essentials first: housing, utilities, food, transportation to work, and needed medicine.

2. Call your creditors before you miss a payment. Explain your situation and ask what options they have.

3. Talk to a nonprofit credit counselor. The National Foundation for Credit Counseling (NFCC) lists member agencies. A first session is often free or low cost. A trustworthy counselor explains your options and doesn't pressure you.

4. Know your rights. Debt collectors are not allowed to harass you, threaten you, or lie to you. The Consumer Financial Protection Bureau (CFPB) has plain-language information and a place to file complaints.

5. Ask about bankruptcy only with a licensed attorney. It's a serious legal step with long-lasting effects on your credit. For some people it's the right choice, but you need professional advice specific to your state and situation.

6. Watch out for scams. Nobody can legally erase your debts for a fee, remove accurate negative information from your credit report, or make your debt vanish overnight. Walk away from anyone who asks for large fees upfront.

Your next step

Tonight, take 30 minutes and build your debt table from Step 1, with every balance, interest rate, minimum payment, and due date. Then circle the one debt you'll target first, using either the smallest balance or the highest rate. Tomorrow, set up autopay for all your minimum payments. Once those two things are done, you have a real plan instead of a pile of bills.

FAQ

Is the snowball or avalanche method better?

The avalanche usually costs less in interest, while the snowball gives faster wins that keep people motivated. The best method is the one you will stick with.

Should I save money while paying off debt?

A small starter emergency fund helps, so a surprise expense doesn't go back on a credit card. Grow it further once your debts are paid.

Are debt settlement companies a good idea?

Be very careful. Many tell you to stop paying bills, which can hurt your credit and lead to fees and lawsuits. A nonprofit credit counselor is a safer first call.

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