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How to Get Out of Debt

Finding the best way to get out of debt based on your unique financial situation.

Debt problems can feel overwhelming, particularly because you’ve probably never heard of the solutions that you need until you need them. Thankfully, you’ve come to the right place to learn how to get out of debt faster, more efficiently and for less money.

Learn how to eliminate debt so you can save money and your credit

What is the best way to get out of debt?

This really depends on a few things:

  1. The type or types of debt that you hold
  2. Your budget and free cash flow
  3. Your credit score

In general, different types of debt require different solutions. You must solve credit card debt problems separate from student loans, with another strategy for back taxes. So, if you hold a few types of debt, you may need a few solutions to achieve freedom.

Still, although each situation is unique, these are generally the best ways to get out of debt:

Type of DebtBest Way to Get Out
Credit card debt (still with the original creditor)Credit card debt consolidation
Credit card debt (when it’s in collections)Debt settlement
Federal student loansFederal repayment plan
Private student loansPrivate student loan consolidation
IRS tax debtInstallment Agreement (IA)


If you hold more than one of those types of debt, you probably need a multi-prong strategy to eliminate it. You can follow the steps below to get organized so you can get started.

5 Steps to Get Out of Debt

Step 1: Tally up your debts to see where you stand

In order to know how to get to zero, you need to know where you currently stand. When people face challenges with debt, the instinct is often to ignore it. As a result, you may not know exactly who you owe or how much you’re in.

So, the first step to get out of debt quickly is to take a full account of all the obligations you have. For each balance, write down the:

  1. Total amount you owe
  2. Current monthly payment
  3. Interest rate (APR)
  4. Status: Current, Behind or Charged-off

Step 2: Prioritize your debts for elimination

Next, you prioritize the debts that you need to eliminate. Keep in mind that you shouldn’t let any debt fall behind. Even if you focus on eliminating one type of debt, you need to keep the others current. So, unless a debt is already in charge-off status, try to keep up with the payments.

This is especially true for obligations like a mortgage or auto loan; although these would be the last debts you work to eliminate, they are the first bills you should pay each month. Foreclosure or repossession is not something you want to face, so do everything within your means to keep up with your mortgage payments.

To prioritize the debts you want to eliminate, you generally start with the ones that cause the most pain. So, for instance, tax debt is extremely damaging. The IRS can garnish your wages and place liens on property; they can also apply penalty APR up to 25% of what you owe. If you have tax debt, you should probably find a solution for it first.

Review your debts carefully to find the best way to get out of debt
Credit cards would generally be next. They don’t cause as much financial pain as taxes; a creditor must sue you in civil court to garnish your wages. However, credit cards have relatively high interest rates compared with loans. That means they cost more as time goes by. You eliminate them next to minimize the total cost of getting out of debt.

Finally, you have student loans. If you hold federal and private loans, you may need two solutions to eliminate them. There are a few reasons you worry about these last:

  1. The interest rates should be relatively low compared to other debts
  2. It’s easier to get deferment or forbearance
  3. There are special ways to pull them out of default and eliminate credit damage

Step 3: Find the best way to eliminate each type of debt

Now that you have your debts prioritized, you can start looking for solutions. Here’s any easy reference guide to potential solutions that you may use:

    1. Use penalty abatement to reduce interest charges and penalties
    2. Set up an Installment Agreement for a consolidated repayment plan
    3. Consider an Offer in Compromise if you can’t afford to repay everything you owe
    4. File for Innocent Spouse relief if you didn’t knowingly incur the debt
    5. Apply for Currently Not Collectible status if you have a limited budget and there are other debts you decide to eliminate first
    1. If you have good credit, explore debt consolidation through a balance transfer or personal consolidation loan
    2. When you don’t have good credit or you owe more than $50,000, you should enroll in a debt management program
    3. If you’re not sure which option to use contact a nonprofit consumer credit counseling agency
    4. And if most of your debts are already in collections, consider debt settlement
    1. If you have federal loans from several different Financial Aid programs, consolidate them with a Federal Direct Consolidation Loan
    2. Then enroll in a federal repayment plan to find payments that work for your budget and your goals
    3. If you work in public service as a nurse, teach or first responder, look into Public Service Loan Forgiveness
    4. For private student loans, you will mostly want to use Private Student Loan Consolidation

Step 4: Enroll in each relief option to start working your way to zero

Once you explore solutions, it should give you a better idea of how to arrange your debts for repayment.

For instance, let’s say you have tax debt, credit card debt and student loans to pay off. You may apply for deferment for the student loans and Currently Not Collectible for the tax debt; that would give you breathing room to address the credit card debt first. Then once you get a debt management program in place for the credit card debt, you can set up an Installment Agreement. Finally, you consolidate the student loans using an income-based repayment plan to get payments that you can afford.

By contrast, let’s say you have private and federal student loans plus credit card debt. If you can qualify for deferment on the federal loans, giving you time to focus on the other two. If you have good credit you can use a personal consolidation loan for the credit card debt. Then you consolidate the private loans. By the time your deferment period ends, you can sign up for a federal repayment plan for your federal loans.

Just remember, you don’t have to wait to complete one solution before you find a solution for the next. The more solutions you can run in tandem, the faster you can get out of debt.

Step 5:  Set up a budget so you don’t make a bad situation worse

The final step to getting out of debt faster is to set up a balanced budget with all your solutions included. You should be able to afford:

  • All your other obligations, like your mortgage and auto loans
  • All the debt solutions and repayment plans you set up
  • Your other necessary expenses
  • At minimum, saving 5% of your income for emergencies

That last point is critical. You need emergency savings! Otherwise, every time an emergency expense inevitably comes up each month it will go on credit and increase the debt you must pay off. So, saving money is actually a crucial step in debt repayment.


Article last modified on November 28, 2017. Published by, LLC . Mobile users may also access the AMP Version: How to Get Out of Debt - AMP.