Being buried under a mountain of debt can happen in a blink of an eye. Whether it was a medical emergency, a job loss, or family issues, debt can have a haunting effect. If you are ready to climb out of the hole of debt, here is a complete guide to getting yourself a clean financial slate.

A guide to getting out of debt in yellow and blue

Confront It

Many of us that are in significant debt are afraid to even think about exactly how much debt we have. However, debt is one of those problems that won’t just simply go away if you stop thinking about it.

The first step to getting out of debt is confronting it. You most likely don’t even know exactly how much you owe or who you owe it to. The first step is to find all your debts and add them up.

This includes student loans, credit cards, personal loans, auto loans, and more. Essentially, anything besides your mortgage for now.


The next step is to put into perspective exactly how much debt you have. One simple tool that banks and lending institutions use is a ratio referred to as the debt-to-income ratio. You simply take your total non-mortgage debt and divide it by your annual income.

As an example, let’s say you have $40,000 in pre-tax annual income with $80,000 in total debt. We simply take the $80,000 and divide it by $40,000 to get a total of 2. This means you owe 2x more than your annual salary.

Do not worry if your number is high, many consumers have effectively gotten out of debt with a debt-to-income ratio of 3 or more.

Your Mentality

The only way to effectively get out of debt is to stop or change the habits that got you into debt in the first place.

There are many reasons we get into debt, Whether it’s schooling, past-due bills, or a medical emergency, most of us did not choose to be drawn into the cycle of debt.

You cannot move forward if you keep looking back, so instead of thinking what you could have done differently, start changing yourself today! Take a moment to write down what got you into debt. For many of us, it was living a lifestyle way beyond our means.

When thinking about the things that got you here, have a free train of thought and write it all down.

For instance, do you frequently spend money eating out during lunch or dinner? Cut back and start cooking at home.

Have a cable subscription? Cancel it and go with Netflix or Amazon Prime. Essentially, you must focus on cutting any unnecessary extras in order to save.

Start Earning

The only way to repay the money you owe is with money, right? If you want to actually start getting out of debt, you must take home enough every month to pay off your balances and keep your lights on.

Instead of spending much more than you earn, try earning more than you spend. You will need to earn extra money in order to pay off the debt as soon as possible to avoid extra interest charges.

Although most of us already have a full-time job, you should try to make time to find an additional source of income. You can try searching for part-time positions or night shifts at local businesses.

Even consider getting a higher paying full-time job. Do you think you are underpaid or overqualified for your job? You shouldn’t rush to your boss’s office and quit your job, but you should definitely explore other career options.

Another way to save big is to move. Are you living in a small apartment in a nice area of town? If so, search for cheaper housing. If you can save just $150 per month on rent, that would amount to $1,800 per year.

Although earning money is a great way to get out of debt, it can be hard for many of us to find a high paying job that requires extensive qualifications.

Sell Stuff

If you have things sitting around the house, it’s time to sell. If you haven’t used or touched a certain item in over 6 months, sell it. You can sign up for websites like eBay or apps like OfferUp or LetGo. Craigslist is also another great source to sell unwanted things.

The benefit of using these platforms to sell is that you can get instant cash to repay your debts. Although it may be time-consuming, many niche eBay sellers are easily selling over $2,000 worth of items every single month.

Work More

Coming home from a full-time job to do more work can be exhausting. But it is, in fact, necessary to succeed at erasing your debt. A second job is a great way to get some extra cash for those bills.

The extra income you can earn from a job will help you pay down debts much faster, although there is a good chance you will be drained every single day. Thankfully, if you have a skill in a specific niche or industry, it’s easy to find remote work online.

As a remote worker, you get the comfort of working in your own home. There are many remote opportunities available these days including tutoring, translation, and writing. You could even take on a side gig such as Uber to help pay those pesky bills.

You can also start showing more effort at work in order to get a much-needed promotion. If you can’t get promoted, find a job that pays more. You could even go to your current employer’s competitor and see what they are offering.

Pay More

Although you might be strapped for cash, one way to reduce the overall debt you owe is to pay more than the minimum payment amount. If you can pay more than the minimum payment, you will be spending much less in interest expense over the lifetime of the loan.

As an example, if you have $15,000 in debt at 15% interest and are trying to repay the debt in 3 years, you will be paying $519.98 per month. A total of $3,719 will go towards interest expense alone.

By paying just an additional $100 more per month toward the same debt you will pay your debt off 7 months earlier and save nearly $800 in interest expense.

Resourceful Tools for Debt

Getting started on tackling your debt is only part of the battle. Thankfully, a multitude of tools that are readily available to help you get out of the circle of debt.

Balance Transfers

A balance transfer is when you “move” your debt from one credit card company to another. Many credit card companies now offer a 0% balance transfer which can help stop the bleeding coming from ridiculously high-interest rates.

To bring in customers, the 0% balance transfer method will apply for usually a year. So once you transfer your debts, you will not be forced to pay the interest that you did previously.

However, know that balance transfers come with their own faults:

  • You cannot do a balance transfer to the same credit card company you already have. The balance transfer can only happen if you open a new account with a new credit card company.
  • Balance transfers are a great way to buy time, but they won’t lower your payments. You must still make monthly payments but with 0% APR for the first year.
  • There is a chance you could get denied. Credit card companies can be nervous when it comes to accepting balance transfers from those with bad credit.
  • When you do a balance transfer you will be given a new credit card. This can lead many consumers to abuse the card just as they did before.

Debt Consolidation

If you never heard of debt consolidation, it essentially means obtaining a personal loan to pay off all your debts and then repay the personal loan. You get to pay off all your multiple debts and now only have to deal with 1 payment per month.

Sadly, you will need good credit to get a personal loan at an affordable rate. However, many personal loan lenders understand that consumers need these loans to pay off debt and repair their credit, so there is some leeway.

What is great about personal loans is that they are stable and fixed. The life of the loan is already set before the money is taken out and the monthly payments are fixed for the duration of the loan.

This way, you can know exactly how much you are expected to pay monthly.


If you have an auto loan or any type of installment-based loan with an asset as collateral, consider refinancing. Refinancing is a great way to lower the interest rate you pay on a loan.

Maybe your credit has improved slightly since you first got your loan, or interest rates are much lower now. In any case, shop around for refinancing options online.

Debt Reduction Methods


If you are being penalized by high-interest rates on your credit card debt, call your credit card issuer today. As odd as it may seem, many consumers actually call their credit card company to ask for lower interest rates.

If you have had a solid past history of making on-time payments, your card issuer may actually lower your rates. Remember, the credit card company just wants to get paid and the worst they can say is no.

Snowball Method

The first step to the Snowball Method is to create a list of all your debts ranked from smallest to largest.

This strategy involved you paying off the smaller balances first while making minimum payments on your larger balances. Keep moving on from your smallest debts to bigger and bigger ones.

The goal of this method is to pay off your smaller balances first to free up more money to pay towards the larger debts you have.

Once you pay off the smaller balances, you will feel much more motivated to tackle your larger debt accounts. The goal is to work from small to large until you are completely debt free.

Free Credit Report

Thanks to government mandates, every single consumer in America is entitled to receive their complete credit report for free, once per year, from the government website www.annualcreditreport.com. You should check your credit report and make sure that all the entries are correct.

If you examine your credit report and find an error, file a dispute right away. When you file a dispute with the credit bureaus, they are forced to investigate. The bureaus will have 30 days to respond to the dispute.

They may send you a letter asking for additional information. This is a common stall tactic and you are not required to respond.

If the bureaus cannot prove that the debt is yours or that the amount is incorrect, they will be forced to remove it from your report. This can be essential because it can lead to an increase in your credit score.

Once your credit score has increased, you should see a reduction in the interest you pay.

Share Expenses

Having a roommate is a great way to save on expenses. After all your electric bill, rent, and other utilities could literally be cut in half. The money you save from having a roommate will help you get out of debt much more quickly.

You can post your rental on websites like Craigslist or you can place advertisements in local areas that offer pinboards.

The Envelope System

Are you always using plastic to pay for purchases? The envelope system is a great way to avoid overspending on certain items. Essentially, you create a budget of what you want to spend on certain items and living expenses.

Create a series of envelopes and label them as rent, gas, groceries, etc. Each month, you will place a set amount of cash in each envelope. From now on, you will only use that envelope to make any purchases.

This will help you avoid overspending monthly while helping you keep track of all your purchases.


Most experts agree that your housing should cost you no more than 30% of your pre-tax income. Sadly, it’s not uncommon for Americans to be using more than 50% of their income towards rent and other housing-related expenses.

If you have the financial means to move, find a smaller less expensive place. Even though it may not be in an ideal part of town, living in a small studio or one bedroom apartment is a great way to save.


These days, the subscription model is popular for many services and products. Often, many consumers forget that they are enrolled even though they are being billed for the service anyways. Apps like Trim will go into your bank account to view any subscriptions you may have.

Outside Help

Thankfully, you can actually find some outside help with your credit cards. Credit counseling is aimed at educating consumers on how they can repay their debts and get back in control of their finances.

These counseling sessions are offered free of charge. However, be cautious.

Although the government has been cracking down on many scam credit counseling groups, do thorough research before participating in any credit counseling courses.

Often, companies will have some sort of pitch or offer they will try to sell you on while you are receiving credit counseling.

Never pay for anything up front and never seek advice from somebody who promises to lower the amount you owe, as they are usually scammers.


Time to Move

Now that you have taken the time to read through this guide, it’s time to take the first baby steps to being debt free! What is the first step you will take in the journey of becoming debt free? Here are some first steps you can take right now!

  • Cut up your credit card for good
  • Sit down for 15 minutes and make a budget for yourself
  • Call your credit card company
  • List 5 items on Craigslist or eBay
  • Cancel at least one subscription service
  • Make a payment towards your card that’s more than the minimum
  • Get your FREE credit report
  • Call a card company and ask about a balance transfer
  • Write down a new income goal

So which step will you take first?