How to get out of debt: 9 strategies for living debt-free

It’s a common misconception that all debt is bad. Some forms of debt—such as student loans, mortgages, and auto loans—can help you improve your professional and personal life. But while debt can be useful, overspending while already in debt can lead to an unmanageable situation.

To find tips to ensure you aren’t adding unnecessarily to your debt or falling behind on payments, we asked Bob G. Wood—a professor of finance at the University of South Alabama’s Mitchell College of Business—to share his top debt-crushing strategies. These tips and ideas can help you gain lasting financial freedom.

Keep reading to learn how to get out of debt and stay there.

1. Avoid increasing what you owe on your credit cards

One of the first steps to getting out of debt is to stop adding to it. While credit cards are a helpful payment option (especially for unplanned expenses), continually building up a card balance that you can’t pay off every month can negatively impact your debt load and your credit score.

“A debt-averse individual pays the total balance on each credit card before the payment due date to avoid interest charges and late fees,” Wood explains. “This approach helps people avoid using the cards to buy things they cannot afford.”

2. Put some investments on hold

If you’re struggling to figure out how to pay off debt, you may want to put discretionary investments on hold until you’re debt-free. (Think: that $100 in crypto your buddy suggests you buy, or the IPO you’ve been reading about.) In some cases, paying off your debt faster will save you more money than your investments can earn. According to Wood, the exception to this rule is investing as a part of your retirement savings strategy, such as in a 401(k).

“I recommend continuing to fund retirement account investments, especially for those individuals with employer-provided accounts,” Wood says. “Many of these accounts provide a match for individual investments into the account, and that provides a 100% return on the individual’s contribution. Also, delaying retirement investment contributions can drastically reduce the future value of the account.”

3. Commit to a plan

While putting extra cash toward debt payments can help you make progress, having a steady plan is necessary to tackle debt efficiently. Wood shared the following steps consumers need to take when they’re budgeting to pay off debt:

• Step 1. Differentiate between your needs and wants, and review your current expenses. “Be honest—upgrading to the latest cell phone model or adding items to an already full closet are more than likely wants rather than needs,” Wood says.
• Step 2. Develop a realistic budget. Not sure how to budget to pay off debt? Be thoughtful when you create a budget to help keep your spending in check. This new budget should include a fixed monthly amount for debt repayment, beyond any monthly payments for student, auto, or home loans.

4. Choose the ‘snowball’ or the ‘avalanche’ style of debt reduction

When creating a plan to tackle your debt, you may consider the popular “debt snowball method,” which targets the smallest debt first. As soon as this first debt is satisfied, you focus on the next-lowest balance.

While seeing a debt of any size reduced to zero can be incredibly motivating, this approach may come with a cost. “Unfortunately, the strategy often results in more interest paid by the borrower,” Wood explains.

“As an alternative, the ‘debt avalanche method’ targets the highest interest debt first,” Wood explains. “By paying off the debt with the highest interest first, the borrower reduces the total amount of interest paid. Although this approach is more financially sound, it requires the borrower to focus on the long-term result and remain diligent in their payment plan.” 

Note that with either of these approaches, staying current on all debt payments is important, meaning that you should pay at least the minimum amount due, while dedicating any extra contributions to the targeted debt.

5. Try to renegotiate your debt      

One of the ways to pay off debt is to renegotiate it. While there are no guarantees that a lender will agree to negotiate the terms of your debt, you may have more luck if you’re a long-term customer with a history of on-time payments. In this case, a lender may be willing to waive fees, shift due dates, or even lower the interest rate. And these actions should not affect the individual’s credit rating, Wood notes.

Before committing to an arrangement, you should seek guidance from a professional about your specific situation, needs, and goals.

6. (Carefully) consider a balance transfer vs. debt consolidation loan

Transferring credit card debt to a new account has advantages, as many transfer offers may have an introductory period with an interest rate of 0%. A balance transfer can also reduce multiple payments to one, with a single payment date.

But keep an eye on your calendar so you’re aware of when the introductory period ends and the new interest rate begins.

He explains that debt consolidation is similar in concept, but these balances are typically rolled over into a personal loan for debt consolidation, a home equity loan, or a credit card with a lower interest rate (and concurrent lower payment).

7. Consider a rewards checking account

Looking to make the most of the cash you aren’t spending but still need access to? This is where a rewards checking account such as the Discover^® Cashback Debit account can be handy when considering how to budget to pay off debt.

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A rewards checking account can assist consumers in managing their debt by offering perks such as cash back or interest rewards on certain transactions. Consumers can then take those earnings and put them toward debt payments as needed.

8. Make it a family affair

Borrowing money from a trusted family member can help you save a lot on interest, making it easier to get out of debt faster. Let’s say that loved ones lend you the money you need to pay off your high-interest debts in full. You can then focus on paying them back at a lower interest rate or with no interest at all—whatever you agree on.

Just ensure you and your loved ones are on the same page about what this repayment agreement will look like so you don’t strain any relationships.

9. Know when to seek professional help

There may come a point when you need to hire a professional to help with get out of debt planning. “An individual should seek debt counseling when the anxiety associated with the debt interferes with the person’s personal and professional life or when the minimum debt payments are not possible without sacrificing necessities,” Wood says.

“There are both for-profit firms and nonprofit counseling agencies available to help an individual through the process.” The Consumer Financial Protection Bureau offers advice and resources on how to select a reputable counselor.

Consider what strategies might work best for you

There are many different approaches you can implement to help you get debt-free faster. Take some time to devise a realistic plan to tackle your debt so you can pay it off for good and start making your money work for you.

When you’re paying off debt, every boost of extra cash can help. A Discover Cashback Debit Account can help you earn cash rewards on debit card purchases¹ with no account fees. 

Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.

¹ Earn 1% cash back on up to $3,000 in debit card purchases each month. See Deposit Account Agreement for details on transaction eligibility, limitations and terms.