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Whether you’re a few hundred bucks in or owe tens of thousands, getting out of any amount of debt can be stressful. Get ready to leave juggling bills, minimum payments, and dodging collectors behind, our comprehensive, step-by-step guide will show you how to get out of debt in 2022 and choose the strategy that works best for your unique situation.

Table of Contents

Step 1: Determine how much you owe

Fair warning that the first, and most crucial, step towards getting a handle on your debt is likely to be the hardest one. Coming to terms with exactly how much you owe can be a hard pill to swallow, but is something you (quite literally) can’t afford to shy away from. We’re not just talking loans and credit card debt. We mean everything from child support to court fines and even collections for utilities.

Start by writing down everything about each of your debts: what you owe and to whom. Then, make a note of these important details that will come in handy when prioritizing which debt to pay off first:

  • How many billing cycles you’re behind on payments (if any)
  • When a debt is in collections first became delinquent
  • The interest rates for each debt account—most accounts will only have one rate, but credit card accounts may have more than one if you’ve used balance transfers or cash advances.

Use our free debt worksheet to keep track of all your accounts »

 

How can I find all my debts?

The fastest way to find out who you owe money to (and how much) is to look at your credit report, which you can access for free once every 12 months. This report includes data from the major credit bureaus: Equifax, Experian, and Transunion (some creditors and lenders may not report to all three, so looking at only one credit bureau report may not show all accounts). Alternatively, you could use credit monitoring sites like CreditKarma or Mint which aggregates accounts in your name.

In order to find the nitty-gritty details, like interest rates or how many months behind you may be on payments, you’ll need to access each account individually. Still, looking at a credit report (or some other form of an aggregate list) can give you a roadmap of which accounts you need to look into further.

Are there any debts I should exclude?

Reviewing your credit report is also helpful in determining whether any amounts that are reported as owed or overdue are inaccurate. If so, you’ll need to report any wrong information on your credit report to credit bureaus. If you have solid proof that what’s listed is incorrect (perhaps a statement or a receipt), you could safely leave off that debt from your evaluation.

You may also be able to leave off old balances that fall into (or are on the cusp of) the statute of limitations. Depending on which state you live in, debt collectors won’t be able to sue you over unpaid debts after three to six years. A debt that’s beyond the statute of limitations can still be reported on your credit report for seven years from the date the debt first became delinquent. So, you may still see debts even if the collector has no legal right to collect them in court.

Step 2: Review (or create) a budget

Next, you’ll need to assess where your finances stand by taking a look at your budget. This will help you identify the gap between how much you have to pay and how much you can afford to pay. To do this you’ll need to calculate these key figures:

  • Total minimum payments: Although we always advise paying more than the minimum on a bill, it’s helpful to know what’s the bare minimum you need to pay to prevent negative remarks that would go onto your credit history. Check the minimum payment for each individual account such as credit card payments, student loans, car loans, and all other accounts you have.
  • Discretionary income: This is the money that’s left over after paying for essential expenses like housing, electricity, transportation, insurance, and food. If you’re already making payments towards your debts, subtract this amount from your income as well. The leftover amount will indicate how much extra money you could potentially put towards additional debt payments.

How do those two numbers compare to one another? If the total of all your minimum payments is greater than your discretionary income, you could be in trouble. Don’t assume you’re in the clear if the opposite is true, however. If you owe money on an account that charges interest, you could still be paying a significant amount of money towards interest rather than putting a dent in your debt.

Regardless of where your current budget stands, now is the time to squeeze as much out of it as possible. There are two ways to go about this:

  • Increase your income
  • Decrease your spending

In either approach, consider what’s the greatest priority of your current lifestyle. Is it time to spend with your family? If so, taking on a second job could interfere with that so instead, you might opt to heavily trim your expenses. Or, say you’re passionate about cooking and couldn’t bear to skimp on quality—but pricey—ingredients. It could be worth it to find an additional stream of income to minimize the budgetary sacrifices you’d have to make.

Ways to increase your income

The most obvious way to increase your income is to get a second job but that’s not always feasible for everyone. Here are some alternative ways you could beef up your monthly income on your terms:

  • Ask for a raise at your current job (or find a job with higher pay)
  • Find freelance work
  • Find gig work such as Uber or Doordash
  • Sell your old belongings
  • Rent out your home and crash with friends or family
  • Keep your money in a high-yield checking or savings account
  • Donate plasma

Ways to decrease your spending

Decreasing spending can be tough, especially if you’re already working with a bare-bones budget. When deciding what you can (and what you can’t) live without, ask yourself these questions to help you find the line between a necessity and a nice-to-have, and whether it’s worth cutting.

  • How beneficial is this indulgence? Does it offer any long-term benefits like improving your productivity, your mental or physical well-being, or saving you time? If you can’t think of any meaningful benefit beyond a few moments of pleasure, it might be worth cutting out of your budget.
  • Is there a reasonable alternative or a comprise? It’s unreasonable to expect that you’ll be able to strip away all of your usual pleasures. The key to making these budgetary changes sustainable in the long term (which they need to be in order to get out of debt as soon as possible). Part of this can involve scaling back rather than cutting out completely. This can mean making something yourself or reducing the frequency of purchase.

    If it’s a weekly tradition to go to the movies on Sunday, consider having a movie night at home instead or reduce the frequency to once every two weeks. For greater (or alternative) savings, you could skip the concessions or opt for cheaper matinee movies. Little adjustments can add up to major savings.

  • Is there a way of getting it for free (or more cheaply)? There are plenty of services that make it easy to get things for less. Many streaming services have ad-supported tiers that cost less per month. Skip your monthly audiobook subscription and instead become a member of your local library. Have a restaurant you love? Find out if they have happy hour specials. It might take a bit of extra research, but getting to continue enjoying what you love while paying less will always be worth it.
  • Can I live without it? You’ll find that most expenses you’re considering cutting back on are something that you can absolutely live without. Strip away societal pressures, ego, and FOMO (fear of missing out) and you’ll find that there’s not much else you actually need aside from the essentials.

That said, cutting out all non-essential purchases could be hard to sustain. Instead, slowly whittle away at unnecessary expenses as you get accustomed to living without out. Soon enough, you won’t even remember what you were missing.

Not sure how to create your new budget? Try these:

Learn about the envelopes budgeting system »

Learn about the 50/30/20 budgeting systems »

Try Tiller budgeting spreadsheets free for 30 days »

 

Step 3: Prioritize which debts to pay off first

Before tackling the big question of how you’re going to pay off your debts, there’s the matter of figuring out which ones to tackle first. The information you gathered in Step 1 will play a big role at this stage. However, the type of debt is an important factor to consider as well.

Student loan debt will weigh differently on your credit score and your bottom line than medical debt would. These differences, paired with your immediate financial needs, will ultimately determine which debts are your greatest priority to pay off first and how you should deal with them. Here are the ways that debt can differ from one another:

  • Interest vs non-interest. Interest-generating debt like that of credit cards, auto loans, mortgages, student loans, and personal loans cost money to keep around. The charged interest means that less of each payment goes toward the principal so your balance can increase, even if you’re making payments.  Debt that charges interest is usually a high priority because of this.
  • Revolving vs fixed. Revolving accounts like credit cards are types of debts that don’t have a fixed amount or predetermined payback schedule. Conversely, fixed debts are typically installment loans like a car, home, or personal loans. There’s a set amount that is borrowed and can be paid back consistently over time.
  • Secured vs unsecured debt. Secured debts are the types that are tied to the value of an asset such as a house or a car. Failure to pay these balances can result in that associated asset being repossessed or otherwise confiscated. Unsecured debt, by contrast, has no such hold and therefore has less tangible consequences. The primary consequence of not paying unsecured debt is primarily just negative remarks on one’s credit report.
  • Good vs bad debt. It’s hardwired into most of us to think of owing money of any sort to be a bad thing. However, not all debt is equal in the eyes of lenders and creditors, and some might even see view certain types of debt as a positive, rather than a detriment. Student loans and mortgages are two of them. Since these are viewed more favorably compared to other types of debt, it might make sense to put them at a lower priority.
  • Immediately reported to credit bureaus vs delayed reporting. Not all debt is immediately reported to credit bureaus when it’s accrued. If you anticipate buying a house, a car, or making some other large purchase in the future, your priority might be to salvage your credit (or minimize the damage being done) in which case tackling the most credit-damaging debt first.

Another important factor to consider: potential legal consequences. Failing to pay certain types of debt, like court fines or child support, could result in jail time. Even credit card debt could land you in court with a summons from a debt collector. Remember, there are more than just financial or credit-related consequences of debt.

There are a lot of factors to consider and compare. Even if you feel 100% confident that you know how to get rid of debt and which strategies you’re going to take, it’s always a good idea to talk to an expert.

Talk to a debt relief specialist today for free.

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Auto loan debt

Unlike homes, buying a vehicle is almost never considered an investment. Cars are notorious for significantly depreciating in value the second they’re driven off the lot and only continue to decrease in value over time (although classic or collectible cars are an exception). Auto loans are viewed just as unfavorably.

Get familiar with auto loans and how they work »

 

Credit card debt

Credit cards are one of the greatest contributors to consumer debt. They often carry the highest interest rates (currently at nearly 17%) but with rewards cards, rates can be as high as 20% or above, even for those with prime credit. It’s not hard to see how quickly credit card debt spirals out of control. For this reason, credit card balances are usually a high priority when it comes to getting rid of debt.

How to pay off credit card debt »

 

Medical debt

Medical debt is the number one cause of consumer bankruptcies—yikes. But despite how scary this type of debt may sound, medical balances don’t charge interest and they usually aren’t reported until about 180 days after it’s past due, when it’s sent to collections. Even then, due to the newest changes to medical debt reporting, that collections account might not show on your credit report at all if the debt is under a certain balance amount so there’s a decent grace period before an unpaid medical bill negatively affects your credit.

Read the latest changes to medical debt reporting »

 

Mortgage debt

Mortgages are traditionally viewed as one of the safest forms of debt. They typically create equity and generate value over time and are considered what’s known as “good debt” by creditors and lenders. Making payments builds equity for the owners and the debt itself is secured by the value of the home. Additionally, the interest you pay throughout the year is tax-deductible, so making payments also earns you a tax break.

Additionally, mortgage rates are historically pretty low (they’ve hovered around 5% or lower in the last decade) so carrying a balance isn’t as detrimental as it is with high-interest debt. However, because mortgages are a type of secured debt, failing to pay can risk the loss of your home, which would naturally make it a high-priority debt. But you generally want to keep your mortgage current, rather than focusing on paying it off quickly.

Understanding mortgages and how they work »

 

Student loan debt

Student loans are indicative of higher education, which usually means higher earning potential. As such, student loan debt is considered a type of ‘good debt’ by lenders. They also tend to carry significantly lower interest rates compared to other types of loans, so carried balances don’t accumulate quickly. However, many student loan balances are an amalgamation of several student loans, each of which will require its own minimum monthly payment which can quickly add up.

Student loan debt might become a priority if the goal is to lower one’s debt-to-income (DTI) ratio in order to buy a house or get approved or if it was refinanced with a private lender at a variable rate.

Read: Comprehensive guide to paying off student loan debt

 

Tax debt

Tax debt collection can skip some of the other steps required for other debt collection methods since the federal government is involved. As such, the repercussions can be steep and swift.

Failure to pay can result in a tax lien on your property, garnished wages (money taken directly out of your paycheck), or in the most extreme cases, even jail time. On top of all that, owed tax debts are charged interest up to 25%.

It’s also worth noting that tax debt relief strategies tend to have special names for each program. Deferment is referred to as Currently Not Collectible (CNC) status, or settlement is known as Offer in Compromise (OIC). Unless you’re well versed in the specialized tax debt terms, you’ll definitely want to invoke outside help.

Dealing with tax debt? Read this »

 

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Step 4: Choose your payment strategy

You’re likely going to tap into multiple debt-reducing strategies in order to achieve your financial goals. Determining your strategy isn’t so much a question of which method you’ll use but which you’ll use for which account, and when (you may use multiple strategies for one type of debt!). Start by asking yourself a few simple questions:

  • What debts do you have that could be good candidates for consolidation?
  • If you have student loans, are they private or federal?
  • How many of your debts are in collections that would fare better with debt settlement?
  • How many debts that are charged off or in default are close to the statute of limitations in your state?
  • What’s more important, maintaining your credit score or erasing the debt as quickly as possible?

Here’s a general overview of all the available options:

Refinance your loans

One way to provide immediate debt relief is to refinance your loans. By refinancing you can get a new, lower interest rate. This means lower monthly payments and more of each payment will go towards the principal. Plus, refinancing is fast—you can initiate the refinancing yourself and have an answer within days, depending on the refinancer.

Learn more about refinancing student loans »

Should you refinance your mortgage? »

How to refinance a car loan »

Ask for a repayment plan

You may be able to arrange payment plans that allow you to pay less than what’s owed without generating negative remarks on your credit report. Your success may depend on:

  • Whether or not the debt is with the initial issuer or in collections
  • Your relationship with your debtor (Is this your first time falling behind on payments? Are you a long-time customer?)
  • The type of debt (i.e. medical, credit card)

For instance, federal student loans have 6 repayment plans options; some focus on repaying your debt as quickly as possible while others are income-based and lower monthly payments if you’re struggling to keep up with the bills. If you have tax debt caused by back taxes, refinancing is referred to as an Installment Agreement (IA).

Consolidate your debt

Debt consolidation means rolling all debts into a single monthly payment. It makes debt repayment a lot more convenient and to varying degrees, more cost-efficient by saving you from needing to make several monthly payments.

There are two ways to consolidate debt: Getting a debt consolidation loan that is used to pay off your existing debts or enrolling in a debt consolidation program that pays off your existing debts to the original creditor.

How you consolidate your debt will depend on, as usual, the type of debt(s) and your credit score. For instance, someone with good credit could consolidate their credit card debt and student loans with a debt consolidation loan. Someone with subprime credit may not qualify for a new loan and instead, may need to use a debt consolidation program to consolidate. However, these programs aren’t available for student loans.

If you only have credit card debt and good credit, you may want to consider a balance transfer.

Settle for less than you owe

Debt settlement is when the institution or entity you owe money to agrees to consider the debt paid for less than you originally owed. It’s a popular solution for credit card debt and debt that’s in collection. Debt settlement will affect your credit differently than consolidation and is more damaging. You’ll need to weigh if that’s worth paying less out of pocket.

Settling your debt requires negotiating a settlement agreement with your creditor, which can be accomplished on your own or with a debt settlement company. If you have tax debt, you’ll need to use a specialized solution called Offer in Compromise which allows you to clear your debts with the IRS for a percentage of what you owe.

Pro tip: You’ll want to consolidate before opting for settlement. Since settlements can damage your credit score, you could end up becoming ineligible for many consolidation solutions. Consolidation is usually the first solution you should opt for since it simplifies your payment schedule and it won’t damage your credit.

Qualify for debt forgiveness

An alternative option to consider is debt forgiveness. This isn’t available for all types of debt but if you meet the eligibility requirements for lenders that do offer it, they will forgive the remaining balances on your debts without any added fees or penalties. They will also report the debt as paid in full to the three credit bureaus.

Forewarning, debt forgiveness is fairly rare. The most common type of debt forgiveness occurs with federal student loan debts. However, to qualify, you must be in the military or a public service profession, like nursing or teaching.

The other most common form of forgiveness comes in the shape of tax debt forgiveness. Usually, it involves proving you are not legally responsible for the debt. An example of this is “Innocent Spouse” cases, where you prove your spouse incurred tax debt without your knowledge.

Discharge it through bankruptcy

If none of the options above are viable (or your debt has become truly unmanageable) then it may be time to consider filing for bankruptcy. It’s possible to discharge most debts through bankruptcy, even student loans. With federal and private student loans, however, you must show that not discharging the debt would cause continued financial hardship. This can be extremely difficult to prove but is possible with the right attorney.

Chapter 7 bankruptcy is usually the quickest option that allows you to clear your debts in as little as 4-6 months. But be aware that you will incur a ten-year penalty on your credit report with a Chapter 7 filing.

Chapter 13 is another form of bankruptcy that takes between 36-60 months to complete. It involves a repayment plan that lets you pay back a portion of your debts before final discharge. The credit report penalty is shorter than that of Chapter 7 and only stays on your credit report for seven years.

Wait it out

If all else fails, you can always wait for the statute of limitations to expire. Debt collectors only have a set window of time that they can legally pursue you for a debt. When that clock runs out —usually 10 years depending on the state—collectors can no longer sue you for the debt in civil court.

This doesn’t only apply to credit cards. Utilities and medical bills that have gone into collections and even IRS collection efforts can fall under the statute of limitations. The IRS will only attempt to collect back taxes for ten years. After ten years, they will stop garnishing your wages or pursuing any further collection actions.

Note, that there is no statute of limitations on collection for federal student loans. You can be pursued for what you owe indefinitely in this case.

Word of advice: Be careful what you say to debt collectors. If you make a statement acknowledging that you owe a debt, the statute of limitations may reset.

How long will it take?

Set-up times and costs of the different debt relief options will vary depending on the method. Consultations for a debt management program or a settlement program only take an hour, getting approved for a debt consolidation loan can take a few days, but enrollment into a debt management program can take a few weeks.

Solution Time Cost
Balance transfer 1 hour to apply, 3-5 business days to receive card No upfront costs; avoid annual fees
Consolidation loan 1 hour to apply, 7 days to get approved Loan origination fee, averaging 1% of amount financed
Debt management program 1-hour consultation, 3-4 weeks to get approved Varies by state, capped at $79
Debt settlement program 1-hour consultation 2-5% of amount settled, paid upon settlement
Federal student loan repayment plans 2-3 hours to apply Free
Student loan refinancing 1 hour to apply, 7 days to get approved Loan origination fee, 1% of amount financed
IRS Installment Agreement 1 hour to apply, up to 30 days to get approved $52 setup fee for Direct Debit, $120 setup fee for payroll deduction
Tax debt settlement (Offer in Compromise) 3-6 hours to set up, 4-6 weeks to get approved $186 application fee

Find the solutions you need, no matter what types of debt you have.

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Step 5: Executing your debt-relief plan: Choosing DIY or professional help

Do-it-yourself debt relief

If you don’t owe that much money, aren’t terribly behind on your payments, and have excellent credit, you might be able to take a do-it-yourself approach to get out of debt. Refinancing and consolidating could be all you need to resolve your debt and get back on track, which would save you the fees that a professional service might charge.
You may be able to work out a payment plan, negotiate a lower interest rate, or cancel the collection account just by talking to them. This can be particularly helpful when dealing with medical debt collections or other debts that are still with the original issuer.

Do-It-Yourself Relief Options Relief Services
Forbearance Debt consolidation program
Interest rate negotiation Debt settlement programs
Balance transfers (credit consolidation)
Personal consolidation loan
Workout arrangement
Settlement agreement

Professional debt relief

If your debt is more substantial and has gotten way out of hand, you’ll definitely want to turn the professionals. They’ll give you stronger bargaining power and lots of other debt relief perks that aren’t usually available to the public.

How are they able to offer this? Professional debt relief services have pre-existing relationships with creditors and lenders, which makes them much more inclined to waive or reduce your fees or interest rates. Professional debt relief may also be to provide other helpful benefits like immediately stopping negative remarks from being sent to credit bureaus or having your accounts shown as ‘current’ before you’ve paid everything off.

Pros of a DIY approach:

  • No need to pay a third-party service
  • Won’t automatically result in account closures

Cons of a DIY approach:

  • Time-consuming; you’ll have to contact each creditor or lender individually
  • Little recourse if financial institutions aren’t willing to negotiate

Pros of getting professional help:

  • Much higher odds of successful negotiation or settlement
  • Reduced or eliminated fees and interest charges
  • Bring accounts current more quickly (less damage to credit score)
  • The company does all the work for you

Cons of getting professional help:

  • Will charge a fee or take a percentage of the savings
  • Some solutions may require accounts to be closed

Step 6: Stay debt-free

Once you have your solutions set up, it’s time to set up your finances to support your journey to become debt-free.

Set up auto-pay

Take advantage of autopay. Making on-time payments is crucial to following through with your debt relief plan, repairing your credit, and staying out of debt. At the very least, ensure that you’ve enabled minimum payments to automatically go through when a bill is due. It will also mean more of your money stays in your pocket by preventing you from incurring late fees.

Track your spending

If you didn’t have a budget before, now is the time to make one and stick to it. Manually keep track of your purchases or monitor them using a personal finance platform (there are plenty of free options out there). Take the time to review each and every purchase you make, as you make it, to give you a greater sense of how you’re using your money and, if need be, to slow down your spending.

If you exceed your spending budget in a certain category, cut back on a different one. The ultimate goal is to ensure that you’re able to set aside the agreed-upon amounts for your debt repayment. If you don’t think you’ll be able to, don’t let the deadline pass before notifying those you owe (or the debt relief companies you’re working with). It’s always better to be proactive about money troubles than to deal with them after a payment due date has been missed.

Avoid creating new debt

  • Put off large expenses like buying a new car or home, or going on vacation until you’re out of debt.
  • Only open a new credit card for the purpose of consolidating or refinancing existing debt.
  • Stay on top of any medical bills so you can avoid new collections. If your insurance is supposed to pay, keep track of your claim to make sure they cover everything they are supposed to.
  • Use cash instead a credit card. Handing over tangible money makes spending feel much more real and can curb overspending.

Commit windfalls towards repayment

Got a tax refund, a bonus at work, some birthday money? That extra income can go a long way toward paying off debt more quickly, especially if you’re dealing with debt where income is involved. Each chunk of change can help lower your monthly payments, giving your monthly budget more breathing room.

Start saving

Set up an emergency fund so unexpected expenses don’t creep up on you. This financial cushion can save you from having to rely on quick but costly cash advances or payday loans that can have astronomical interest rates. Plus, it’ll give you peace of mind knowing that you can turn on autopay without the risk of overdrafting your accounts.

Continue monitoring your credit

It’s also smart to keep an eye on your credit so that you can make note of your updated account statuses as you bring them current. You’ll also want to make sure your credit history shows all payments as made on time.

Mistakes to avoid when paying off debt

Borrowing from your retirement fund. Just because you can borrow from your 401 doesn’t mean you should. Doing so can result in steep penalties if you don’t pay it back in time.

Tackling all debt at once. The old adage ‘Jack of all trades, master of none’ applies to debt as well. Avoid spreading yourself too financially thin by attempting to get rid of multiple sources of debt simultaneously. You’ll pay off debt faster by focusing your efforts (and dollars) on a select few at a time.

Making an unrealistic budget. Give yourself a little wiggle room. Otherwise, you risk falling short and not being able to follow through with your debt strategy in case you slip up and have a lapse in financial discipline.

Closing credit cards that have been paid off. This hurts your credit score (which probably needs all the help it can get at this point) and can leave you financially stranded in the future. Instead, relegate the card for emergencies only and just tuck them away so you won’t be tempted to use them. It’s important to have credit available to you when unexpected emergencies arise.

Using an illegitimate debt relief program. Before you agree to use anyone’s services you’ll want to verify that they’re on the up and up (these are the signs of a debt relief scam company).

Going it alone. Even if you want to go forward with a DIY approach, you could still benefit from talking to a debt relief expert. They can help you determine which bills to tackle first and ways to help pay them off that you didn’t know about.

No matter what kind of debt you have, Debt.com can help you solve it.

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Article last modified on September 9, 2022. Published by Debt.com, LLC