How to Get Out of Debt

No one really likes to talk about debt and yet it basically affects everyone, young and old, the rich and the poor.  The world is full of people who have accumulated debt.

Analyzing and talking about your financial situation is essential, however, to making positive long-term financial changes in your life.  It’s about building your future.

One of the first steps to get yourself out of debt is knowing how and why you got there. If yourdebt load is too heavy, ask yourself, “How did that happen?”

Make a list of money you owe, then make a list of money you spent.

Now compare your lists.

Does the spent list show a lot of trips for fast food, restaurants and specialty coffees? Or does it show money going to doctors and medical emergencies? Are there divorce costs? What about home repairs?

Evaluate where you are spending your hard-earned money and use this list as an opportunity to gain insight to your personal spending habits. When you understand your relationship with money, you can make that important move forward.

Some of the key tips to getting out of debt include tracking spending, reducing debt load and embarking on a savings plan.

Track Your Spending

If you’re not sure how much you spend on daily living expenses, such as groceries, personal items and transportation, make it a point to set aside receipts for two to four weeks so you can easily determine your expenditures.  If you don’t take the time to track where your money is going and make the needed changes, then you are in danger of repeating the same behavior even after you pay down your current debt.

Once you have some numbers to work with, calculate your net monthly income and your average spending to include mortgage or rent, insurance costs, health care, education, utilities, any loans and the minimum payments on credit cards. While the numbers may startle you, remind yourself you are taking the first step to making positive and significant change.

Reduce Your Debt Load – Ways to Lower Your Debt

There are several ways to help reduce the cost of existing expenses to help lighten your debt load from refinancing, consolidation and renegotiating payment terms.  Among them are refinancing your home or car, consolidating your loans or bills and renegotiating your existing loans or payment plans.


If you plan on staying in your home long enough to recoup transaction fees, refinancing your mortgage to a lower rate may be an excellent way reduce your monthly obligation.

Refinancing a car or student loan to a lower rate is also an option, and many lenders may reduce the rate on the student loan if you have a good payment history.


If you have built equity in your house, a Debt Consolidation Home Equity Loan or Line of Credit is another option. This approach allows you to replace credit card, auto loan or other high-interest debt with a lower interest rate loan.

At the beginning of 2012, the interest on home equity loans or lines of credit was 7 to 10 percent lower than most credit cards. These types of loans are also potentially tax-deductible.

If someone does consolidate loans through a home equity loan or line of credit, it’s important to realize that the new loan is now a secured debt. The house, in effect, backs up the loan, so it is a less-risky venture for the lender.

While consolidation may lower your monthly obligation, it’s vital to remember your total debt load has not changed, only the manner in which you are paying it off. Continuing to use credit cards and taking on new debt could make your financial situation worse.

Renegotiating Terms

Here’s something you may not know: credit card companies will negotiate terms for you. Not always, but they are more flexible than we tend to think.

Sometimes all it takes is a phone call to customer service to lower your credit card rate, whether it’s a fixed or variable rate. When you call, tell the customer service agent your current interest rate, how long you have been a customer and of any pre-approved balance transfer offers from other banking institutions you may have received in the mail.

One survey reported a rate-reduction success of 56 percent with an average savings of more than 30 percent.

Pay Down Your Credit Cards

While you may be eager to wipe away all of your debt quickly, some bills are best paid off before others. It is recommended you take care of credit card debt prior to paying off car loans or a mortgage because credit card interest rates are typically much higher, and mortgage interest is tax deductible.   

Many financial analysts recommend consumers begin reducing their debt by paying more than the minimum payment on credit cards/loans with the highest interest rate. Once the high-interest debt is paid, you can tackle the next one more quickly by combining the regular payment along with the money previously paid on the first card.

For example: if you are paying $300 a month on credit card A and $200 per month on credit card B, once A is paid off, make $500 payments on credit card B. You’ll be surprised how quickly your debt will continue to dissolve.

Some financial analysts recommend paying off the credit card with the largest balance relative to your credit limit first as that will help improve your “utilization ratio.” This number indicates your borrowing power and accounts for 30 percent of your credit score.

While there are multiple theories , find the one that works best for you as they all eventually result in financial freedom.

Moving Forward and Saving

According to research, only 28 percent of consumers have saved enough to withstand financial hardship.

It’s highly recommended that while you pay off your credit card debt you also make payments to your savings account. Whether you make $20 payments on a weekly basis or $100, you will come out ahead of the game. Perhaps in an emergency situation, you will not have to rely on your credit cards in the future – giving you the debt-free living you desire.

Of course, while refinancing, consolidating and/or renegotiating terms can put you in a much better financial situation, it’s important to remember to watch your daily spending habits.  Cutting back on expenses will help you in the long-term.

With a little planning, downsizing your expenses and living within your means can be easier than you think. Simply bringing your own lunch to work five days a week instead of eating out can possibly save $200 per month – thousands of dollars in one year you can use toward credit cards or even put into a savings account. There are so many little ways to save: buy in bulk and freeze foods to make a dent in the grocery bills, skip the automatic car wash, brew your own coffee, mow your own lawn and get rid of your home phone.

When You Need Advice

If you need financial advice on how to produce a workable budget and pay down your debt, there are many credit counseling organizations that can help. Most of these services are available through the Internet, telephone or in-person at local offices.

While there are numerous reputable debt counseling agencies that can help you manage your finances and consolidate debt, there are many disreputable agencies, so be sure you investigate their reputation and terms before signing any paperwork.

According to one report, nearly 17,000 people logged complaints about scams with the Federal Trade Commission (FTC) in 2010.
  • Be wary of anyone wanting a fee to modify a mortgage.
  • Be wary of counselors who promise to save your home and require money upfront.  These counselors, according to a one large financial institution, are known for telling their customers that payments to them go toward a lawsuit that will bring your mortgage current and drop your payments.
  • Don’t transfer your home’s deed. Some companies use this tactic in trying to “save” it. Never make your mortgage payment to anyone other than your mortgage company unless they approved the deal.
  • Consider reaching out to a non-profit credit counseling service located at many universities, military bases, credit unions and branches of the U.S. Cooperative Extension Service.

A big part of getting out of debt is understanding that you can get out. Despite the total debt you have, there are ways to deal with each situation.

After you acknowledge that this is possible, know that help is available. You don’t have to go through this alone. But the first two steps are the biggest: acknowledging that you need help and being willing to get it.