At a Glance

If you’re deep in debt, you may wake up each day with the thought, “I’m in debt and I don’t know where to start.” It can be overwhelming, and you may begin to think you’ll be in debt forever. But even though you may feel like you’re absolutely drowning in the money you owe to others, know that there is always a path forward. Here’s how you can change your financial situation and get on the right track to paying down debt quickly and completely.

Stop accruing more debt

If you acknowledge that you’re drowning and you’re ready to pull yourself out of debt, Step 1 is to stop taking on more debt. Immediately press pause on all spending that’s not considered essential.

The essentials are areas you can’t give up, like food, rent, utilities, insurance, etc. Consider cutting back on non-essentials like travel, entertainment, dining out, and shopping until you get a handle on debt. This also means you’ll want to put a hold on any upcoming large purchases, like buying a home or new car.

Assess your debt situation

Once you’ve stopped the bleeding, so to speak, it’s time to figure out where you stand. That means you’ll need to take an honest look at your debt, where it came from, and how much it’s actually costing you. The simplest way to calculate your debt burden is to assess your debt-to-income ratio or DTI ratio.

To calculate your DTI ratio:

  1. Make a list of all debts: Jot down how much you pay each month toward your debt for loans and credit cards and add upt the total. For example, if you have student loans at $200, a car payment at $150, a mortgage at $700, and a personal loan at $300, your total monthly debt payment is $1,350.
  2. Figure out your gross monthly income: This number is your pre-tax, pre-deduction income. So if you make $50,000/year, your gross monthly income will be $50,000/12 = $4,166.
  3. Divide monthly debt payments by monthly income: Your result will be a decimal which you should convert to a percentage. Using our numbers above, the DTI ratio is $1,350/$4,166 = .324 = 32%.

As a rule of thumb, a DTI ratio below 36% is considered “affordable,” while over 50% is deemed high risk. If your DTI ratio is over 50%, you may struggle to find lenders who will allow you to take on more debt in the future. Regardless of your number, if you feel that you’re drowning in debt, it’s time to assess the fastest ways to get out of debt.

Create a debt repayment plan

Once you have information on all of your debts, it’s time to make a plan. Of course, you’ll want your plan to be realistic and achievable based on your current income. And two of the most popular strategies you may want to consider are the debt snowball and the debt avalanche methods.

The snowball method starts with paying down the smallest debt balance first, while the avalanche attacks the loan with the highest interest rate to start. Each of these approaches can work depending on whether you’re motivated by seeing progress (snowball) or saving money on interest (avalanche).

Related: Snowball vs. Avalanche Repayment Methods

Once you choose a strategy, commit to sticking with it for a period of months or years, depending on how much debt you have. And that means throwing all excess cash toward your debt to dig you out as quickly as possible.

Consolidate as needed

For those managing multiple debts, the process of making all the payments each month can be a burden. If you’re regularly missing payments because of the confusion of managing multiple debts, consider debt consolidation. You’ll use a new loan, like a personal loan or home equity loan, to pay off other debts and leave you with one single monthly payment.

You could also look at consolidating credit card debt with a balance transfer credit card. Certain cards may offer a special introductory annual percentage rate (APR), like 0% for 12 months. So if you can pay off a significant amount of debt in that period and avoid accruing debt in the process, it can be a sensible move. Sometimes consolidating into one reasonable monthly payment at a lower interest rate is enough to increase your motivation to pay off debt and help you get out of debt fast.

Drowning in debt FAQs

How can you avoid getting into too much debt?

To avoid getting into too much debt, start a regular monthly review of your finances, including income, expenses, and debt-to-income ratio. Keeping these numbers at the top of mind can help you course-correct if you’re toeing the line of getting into a risky amount of debt.

Related: How Much Debt Is Too Much Debt?

What happens if I get into too much debt?

Getting into too much debt may mean you won’t be able to pay it off without help. That could put you in a position of needing to borrow more money to pay off your debt. If you feel that you’ve taken on more debt than you can handle, it makes sense to talk to a credit counseling service or financial planner who can help with a plan to get out of debt.