5 Steps to Get Out of Debt in 2022

man stretching with relief at being debt free

Americans have never been in more debt. According to data from the Federal Reserve Bank of New York, aggregate U.S. household debt reached a record high of $15.24 trillion in the third quarter of 2021—an increase of $286 billion and a 1.9% rise from the second quarter of 2021.

Are you shouldering substantial debt? Read on to learn five ways to get out of debt now, including by paying down mortgages, student loans, personal loans, auto loans and credit card debt.

1. Add Up All Your Debt

Before you can devise a plan to pay down your debt, you'll need to take inventory of everything you owe.

For a complete picture, it's a good idea to list all your debt. Account for everything, including your mortgage, student loan, auto loan, credit card and personal loan debt.

It can be helpful to construct a table that contains all of your balances and their respective interest rates, minimum monthly payments and due dates. For example, you could construct a chart like the one below:

Sample Debt Repayment Summary
Debt TypeTotal BalanceInterest RateMinimum PaymentMonthly Due Date
Credit card 1$1,50017%$35The 7th
Credit card 2$1,40017%$35The 10th
Personal loan$3,0009%$140The 14th
Car loan$18,0005%$350The 1st

2. Create a Realistic Debt Payoff Plan

Once you've taken inventory of all your debt, you'll need to come up with a plan for paying it off.

Making just the minimum payment each month could mean staying in debt longer and paying more in interest over time. It's often in your interest to pay down high-interest debt—like credit cards, some personal loans and some auto loans—as quickly as possible.

Consider these tried-and-true strategies for paying down debt:

Debt Avalanche Method

With the debt avalanche method, you start by paying off your debt with the highest annual percentage rate (APR).

You'll continue making just the minimum payments on all other debts and use extra funds to make aggressive payments toward only the debt with the highest interest rate. Once your highest-interest debt is paid off, move on to the debt with the next highest rate and repeat the process.

The benefit of the debt avalanche method is that you may save more money by paying down the balance with the highest rate. The downside is that it could take a long time to see results if your highest-APR debt is also the one with the highest balance.

Debt Snowball Method

Like the avalanche method, the debt snowball method prioritizes paying down one balance at a time while still making the minimum payments on other balances. But the snowball method has you prioritize paying off the account with the smallest balance first.

If you're a person who thrives when you're able to celebrate small victories, the snowball method could motivate you to stay on track with your debt repayment goals. Seeing the number of accounts with a balance decrease can also make the task feel less overwhelming.

Use a Debt Consolidation Loan

Debt consolidation loans are a type of personal loan designed specifically for paying off high-interest debt, such as credit cards.

If you have a good credit score, you may be able to use a consolidation loan to streamline your monthly debt repayments so that you only have to make one monthly payment, rather than multiple. In addition, consolidation loans have a fixed APR and a set repayment schedule, which can add structure to your repayment plan.

Don't use a personal loan to consolidate your credit card debt if you think you may be tempted to rack up new balances on your cards. If that happens, you could end up worse off than you were before.

Use a Balance Transfer

If you have good credit and can afford to pay off your debt in the next year or so, a balance transfer credit card could be a good choice for you.

Many balance transfer cards offer an introductory period of 0% APR for a certain number of months—often more than a year. Once the introductory period ends, the interest will jump up to the card's standard rate and apply to any remaining balance. For this reason, balance transfer cards might not be a good option if you don't have a plan to pay off your debt before the 0% APR period ends.

Balance transfer cards generally require you to pay a balance transfer fee that's typically 3% or 5% of the total transfer amount. The fee for transferring a $5,000 balance could cost you $150 to $250, for instance. They also typically require good to excellent credit scores.

3. Adjust Your Budget

If you don't already have a budget, creating one can help you get out of debt. A budget helps you pinpoint places where you might be able to cut back and better position yourself to pay down your debt more aggressively. A budget is especially essential for getting out of debt on a low income, but everyone can benefit from budgeting.

Some experts recommend using the 50/30/20 rule for budgeting. This method has you earmark 50% of your net income for just the essentials: housing, utility bills, phone bill, insurance, transportation, the minimum payments on your debts and essential food items.

The remaining 50% is then divided up between debt repayment, savings and discretionary spending. One conventional approach is to allocate 20% towards debt and savings and 30% toward wants, but you might choose to limit your discretionary spending while you focus on paying down debt.

For example, you might choose to cancel your gym membership and work out for free at home or cut back on the number of streaming services you use, with the understanding that you can add these back in once you've paid down your debt.

4. Find Ways to Make More Money

On top of adjusting your spending to direct more money toward paying down debt, finding additional sources of income can help you pay down debt faster.

Think creatively when considering options for alternative income. For example, you could use the skills you already have to do freelance work from the comfort of your own home. You could also consider gig work like walking dogs or driving for a ride-hailing service. You could pick up shifts as a server, try selling crafts on Etsy or sell clothes you no longer wear on online auction sites.

However you bring in extra cash, funnel the money into paying down debt.

5. Hold Yourself Accountable

Just like debt can take a long time to build, paying debt down can be a slow process.

Small, achievable goals can help you stay motivated and on track. For example, you might aim to pay an extra $50 or $100 towards your debt per paycheck. You can also set milestone goals, such as paying off your debt with the smallest balance in three months.

If you're struggling to stay motivated, it might also help to reward yourself for your progress. For example, if you're paying down a $3,000 personal loan, you could reward yourself with a small treat for every $500 you pay off.

Just be sure to pick affordable yet enticing rewards, like planning a movie night complete with popcorn and candy, allowing yourself a full night of gaming, or treating yourself to an at-home spa day complete with a DIY pedicure and mud mask.

The Bottom Line

Getting out of debt is an excellent way to increase your financial health and qualify for better credit offers down the line. For example, when paying down debt lowers your debt-to-income ratio, it may also help you qualify for a mortgage.

On top of paying down high-interest debt, take additional steps to improve your finances and improve your financial habits for life. You may be able to increase your credit score instantly using Experian Boost . This free and secure feature connects to your bank account to give you credit for the bills you already pay, such as utility, phone and streaming service bills.

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