At a Glance

In 2018, American household debt reached a record $13.21 trillion.¹ Americans under the age of 35 owe about $67,400 on average², with credit cards and student loans making up more than 40% of their debt.³ Here are several ways to get out of debt more quickly and help avoid getting into debt in the future.Steps to getting out of debt:

You might be looking to reduce interest, pay down debts faster or lower monthly payments- and consolidating your existing debt can be a good start. Answer a few simple questions to find the best consolidation options for you, or read on for more helpful tips about getting out of debt.

What debt do you want to consolidate?

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Determine how much debt you owe

To start getting out of debt, it’s important to get a sense of where you stand by figuring out the total amount of debt you owe. Compile your most recent bill statements for all credit cards and loans, credit reports, and credit scores. Your credit reports will allow you to check for accuracy among all recorded debts. Your credit score will let you determine if you’re eligible for a debt consolidation loan or lower interest rates. There are several free apps that let you link many accounts to view your debt more easily, but you can also compile the information in a spreadsheet.

Managing debt: Know the details

Once you have an idea of how much you actually owe, take a closer look at the details. There are three things you’ll want to know for each debt:

  • Due date for each payment
  • Minimum monthly payment
  • Interest rate

Knowing these key details will help to determine the best repayment plan for you.

Develop a debt repayment plan

There are two primary strategies for paying off debt: the snowball method and the avalanche method. Deciding which is right for you is up to personal preference. Our loan payoff calculator can help you make that choice. You can build different payment scenarios with the tool and easily compare the savings from each plan.

Snowball method

The snowball method of debt repayment prioritizes paying off the smallest balance first. Once that has been eliminated, you’ll work toward your next smallest balance, i.e., snowballing. The concept is to make minimum payments on all debts, except the smallest balance, which you’ll pay as much as possible. Then repeat this process until all your debt is paid off. The snowball method likely won’t save you as much money on interest fees, but it can have a positive psychological effect as you’ll see small victories.

Avalanche method

The avalanche method of debt repayment instead focuses on paying off the debt with the highest interest rate first. Like the snowball method, the concept is to pay the minimum on all debts, while throwing as much money as you can at the debt with the highest interest rate. Once that debt is paid, move on to the next highest interest rate and continue the cycle until all your debts are paid.

Pay more than the minimum on your credit card balance

Don’t fall into the trap of paying the minimum on your credit card balances. Every American household with a credit card has, on average, $8,398 worth of credit card debt.4 The national average APR, or annual percentage rate, on all credit cards is 17.35%.5

With those figures as an example, if you paid the minimum $335.92, or 4% of the balance, per month, it would take more than 12 years to pay off the debt. Not to mention you’d be paying more than $4,500 in interest.

And that’s all assuming the debt is on one card, while the average credit card holder has at least four cards. Paying more than the monthly minimum will help you save on interest rates and help you pay off your debt sooner.

Lower your interest rates

Getting your interest rates down can be one of the fastest ways to help end debt. The more you owe, the higher your interest rate is, and thus the more you owe. One way to curb this vicious cycle is by lowering your interest rates. Here are several ways to do that:

Get a credit card with a lower interest rate

Depending on your credit rating, you may be eligible for a credit card with a better interest rate than your current card. This could even include a card with a 0% introductory interest rate.

Get a balance transfer card with a low or 0% introductory interest rate

Another possibility is to get a balance transfer credit card with a lower interest rate or a 0% introductory APR. A balance transfer allows you to move debt from one credit card to another. You’ll still have the same amount of debt, but if you’re able to get a 0% introductory rate, your debt won’t increase as you work to pay it off.

Consolidate debt with a personal loan

For those with a lot of debt at a high interest rate, one way to get out of debt is with debt consolidation through a personal loan. Personal loans tend to have lower interest rates than credit cards. With a personal loan, it can be easier to track exactly how much you owe each month and how long it will take to pay off. Personal loans come with fixed interest rates, monthly payments and repayment periods.

Consolidate student loan debt

If student loans are your biggest contributor to debt, there are resources that can help. Consider student loan consolidation or an income-based repayment plan. There also are certain situations that allow you to have your federal student loans forgiven, canceled, or discharged.

Settle for less than you owe/negotiate other bills

Calling creditors to negotiate a settlement can often help you get your debts down to much less than what you actually owe. While you can do this on your own, there also are debt settlement companies that can assist you for a fee. The Federal Trade Commission offers detailed advice on settling credit card debt. But, the FTC warns of certain risks and debt settlement scams. It’s also possible to negotiate down other expenses like cable/internet, medical bills, car insurance rates and monthly rent.

Earn more money

Ramping up your earnings can be difficult. Some ways to do so can include picking up extra shifts or hours at work, asking for a raise or even adding a side hustle. In 2017, 44% of Americans between the ages of 25 and 34 reported having a side gig.6 Make sure that whatever extra money you’re earning—however you’re doing it—you’re putting toward paying off your debt.

Create and live within a budget

Creating a monthly budget and prioritizing your payment plan are key to paying off your debt. This will help you track where your money is going and figure out where you can cut back. A simple spreadsheet can be a good starting point for constructing your budget. The Federal Trade Commission also offers a downloadable budget template. The FTC breaks expenses into the following categories: housing, food, transportation, health, personal and family, finance and other. If you’re spending more than you’re making, you want to cut costs. Check your habits and drop expensive ones when possible.

Use “found money” to pay off balances

Many people will come across “found money” of some sort throughout the course of the fiscal year. Found money can come in the form of an annual raise, a bonus or an inheritance. Another form of found money could be a big tax return. Wherever your found money may come from, you can use it to pay off chunks of your debt.

Create an emergency fund to avoid future debt

Saving money while trying to pay off debt may seem like an impossible task. But building savings is important to avoid slipping back into old patterns. A job loss, major medical bill or car repair can throw you for a loop. If you have an emergency fund to tap into, that can help you stay on track. Most experts suggest having an emergency fund that can cover three to six months’ worth of expenses. As you start to cut debts, you can reallocate some of that money into a savings account for emergencies.