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1. Review your current financial situation

The first step to debt management can be one of the most difficult: getting a true picture of your financial situation. It can be stressful and scary – but also illuminating.

To start, create a spreadsheet with a row for each creditor that you hold any debt with. The list should include credit cards, student loans, car loans, mortgages and any other sources of debt.

Next, you’ll add four columns:

  • Balance owed
  • Interest rate
  • Monthly minimum payment
  • Whether the debt is secured or unsecured.

A secured debt is debt that’s backed by collateral, such as your house or car.

List of debts
Creditor Balance Interest rate (APR) Monthly minimum payment Secured/unsecured
Credit Card $2,500 21% $20 Unsecured
Mortgage $208,500 5.5% $1,900 Secured
Student Loan $18,050 8% $375 Unsecured
Car loan $9,800 6.2% $204 Secured
Department Store Credit Card $153 23% $10 Unsecured
Mom & Dad $3,000 0% $0 Unsecured

If you haven’t done so in a while or have never, now is also a good time to check your credit report and credit score. Your credit report will also give you a list of all creditors and balances known to the three major credit bureaus.

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2. Simplify your debts

Kick off your debt-free journey by consolidating your unsecured debts. Debt consolidation doesn't reduce the overall amount you owe, rather it combines many of those bills into one single debt – and you might even get a lower interest rate.

What's more, consolidating your debt can improve your credit score.

3 options for debt consolidation

  • Apply for a personal loan
  • Apply for a balance transfer credit card
  • Apply for a home equity line of credit

Personal loan – Personal loans are offered by banks, credit unions and online lenders. The loans are unsecured, and you pay them back in installments over a period of two to seven years.

Note that you might not get a lower interest rate with a personal loan. In fact, it might be higher than your credit card's APR. Personal loans come with fixed rates, and the payments are due monthly. Read the terms carefully and be sure you can afford the payments before signing for the loan.

Balance transfer credit card – Moving your debt to a balance transfer credit card with a 0% APR is a good way to stop piling up more interest and focus on paying down your debt.

But keep in mind that you may be charged a fee of up to 5% of the amount you transfer.

Look for a credit card with no balance transfer fee. If you have to settle for a card that has a fee, make sure it doesn't cost you more than the interest you'll be saving. Otherwise, the card isn't worth it.

Home equity line of credit – If you're a homeowner and have built up some equity in your house, you can consolidate your debt by taking out a home equity line of credit, or HELOC.

It's a revolving credit line similar to a credit card: You can use it, pay it off and use it again. Specifically, you'll be using it to pay off other debts.

One benefit of a HELOC is the fairly low interest rate. Compared to the average credit card APR of about 17%, HELOC rates are averaging around 7%. And, you can get a home equity line even if you have bad credit.

A major disadvantage of a HELOC is that it's secured using your home as collateral. This means if you don't make your payments, you could lose your house.

3. Determine the best way to pay off your debt

Once you've pulled your debt together into a more manageable pile, it's time to decide how to make it go away. Two primary approaches are the avalanche method and the snowball method.

Avalanche method

In the avalanche method, you attack your largest debt first. Since your biggest debt may be costing you the most in interest or have the highest interest rate attached to it, it makes sense to get it off your plate the fastest.

You might want to automate your debt payments, to keep yourself on track toward wiping out what you owe. Set regular monthly payments from your bank account, but be sure you can afford them so that you avoid overdrawing your account and triggering overdraft fees.

Once the largest debt is paid off, you can focus on the second-largest debt, and so on. Crushing your big debts first can save you a mountain of money in interest charges.

Debt snowball method

Although the avalanche method is the more rational way to pay off debt, people aren’t always that rational. That’s where the debt snowball method comes in.

A team of Kellogg School researchers found that people with large credit card balances were more likely to pay down their entire debt if they focused first on paying off the smaller balances.

Winning little victories against the small debts helps encourage people to keep paying down what they owe. By the time they're left with their biggest debt, they'll be confident debt-crushing pros.

Going this route may cost more in interest, but no matter which method you choose, staying motivated to make regular payments is the key to becoming debt-free.

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4. Boost your income

Side hustle
Michelle Patrick / Shutterstock
Increasing your monthly income will allow you to put more money towards repaying your debt.

Consolidation, automation and determination can only go so far. If you're really serious about dumping your debt, you'll need to make more money.

Simply put: Increasing your monthly income will allow you to put more money toward paying off your balances.

Look for a side gig – With so many side gigs available today, there's definitely one that suits your needs and lifestyle.

Uber and Lyft, for example, allow you to set your own schedule and earn extra cash in your free time by driving others where they need to go. Each has its own advantages, and you can work for both if you want.

Sell your stuff – Selling things you're not using can free up space in your home or garage while earning cash you can use to pay down your debt. Take an inventory of your clutter and see what you can sell.

Rent your space – If you’re a homeowner, consider being a host on Airbnb. You get to choose when and how often you host. You can share a spare room in your apartment or offer up your entire home the next time you’re out of town.

5. Last resorts to get out of debt

If none of the choices above will work for your situation, there are two final options to consider: debt settlement and bankruptcy. Neither should be approached lightly.

Debt settlement

In a debt settlement, a creditor agrees to accept a negotiated lump-sum payment instead of the entire debt.

A debt settlement will probably damage your credit score and cost you time and money negotiating with your creditors, likely through an intermediary like a debt settlement company.

The company will charge you a fee, often a hefty percentage of the settlement amount, and you may owe income tax on the amount of debt the creditor agrees to forgive.


Bankruptcy is a legal process that will allow you to eliminate or repay debts under the protection of a bankruptcy court. You can file for Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 bankruptcy permanently clears away some or all of your debt, but you may have to sell your property and hand over any cash you have. Chapter 13 allows you to keep your property, but you'll have to repay part of your debt over a period of three to five years.

Warning: Bankruptcy will destroy your credit score, and the black mark will linger on your credit report for 10 years.

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Moneywise Moneywise Editorial Team

The Moneywise Editorial Team is a group of passionate financial experts, seasoned journalists, and content creators who are deeply committed to providing unbiased, relevant, and accurate financial information. With years of combined industry experience, our team is dedicated to maintaining the highest journalistic standards and delivering informative and engaging content. From personal finance and investing to retirement planning and business finance, we cover a broad range of topics to suit the financial needs of our diverse readership. You can trust the Moneywise Editorial Team to empower you with the knowledge and tools necessary to make wise financial decisions.


The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.