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How to Get Out of Debt: 6 Simple Steps

Reviewed by  Ross Loehr
Last updated: August 30, 2022
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Being in debt can be a stressful experience. Unexpected circumstances like losing a job, getting in an accident, or unforeseen financial obligations can push you into debt or make it hard to repay a loan.

Unfortunately, sometimes being in debt is inevitable. While 30% of all workers in the United States are self-employed according to the U.S. Bureau of Labor Statistics, many of these entrepreneurs rely on debt to keep their businesses running.

Of course, debt may also be a result of uncontrolled spending.

However, whether for personal or business use, debt can be debilitating.

People often wonder how to get out of debt with no money and bad credit. Although this is not always easy, it’s definitely possible to reduce your debt.

Implementing some practical approaches to money can help you become debt free.

6 Practical Ways to Become Debt Free


1. Make a Conscious Decision to Stop Borrowing Money
2. Keep an Emergency Fund
3. Create a Budget and Stick to It
4. Organize Your Debt
5. Throw Any Extra Cash You Have at Debt
6. Consider Debt Consolidation
Step 1

Make a Conscious Decision to Stop Borrowing Money

The best way to start getting rid of debt is to stop depending on debt to fund your lifestyle. If you don’t have the cash to pay for something, simply don’t buy it, especially on credit. Make an affirmed decision to stop borrowing money. You can then focus on getting rid of the current debts you have.

Step 2

Keep an Emergency Fund

An emergency fund helps you pay for emergencies when they do occur. Do not rely on credit cards as a major source of emergency funding. Preferably build an emergency fund of $1,000 or more, depending on your household expenses.

Step 3

Create a Budget and Stick to It

A realistic budget is what you need to get out of debt. A budget helps you track your expenses and income. Moving towards your goal becomes much easier with controlled spending.

Step 4

Organize Your Debt

List all your debts starting from the smallest to the largest. This helps you have a working plan for getting rid of debt. Focus on the debts with the highest interest rates. Strive to get rid of these first and then that extra money can snowball towards paying off your more substantial debts.

Step 5

Throw Any Extra Cash You Have at Debt

If you happen to handle any cash, throw it directly at your debts. Sources of this cash could be a tax refund, a sold item from clothes to a car, or extra side jobs.

Step 6

Consider Debt Consolidation

If you have a good credit record but find your debt payments overwhelming, considering debt consolidation. Consolidating debt into one account means that you’ll only have to make one payment every month. 

You can take out a fixed-rate debt consolidation loan to easily pay off your debt. You will pay lower interest rates on a personal loan than a credit card and this can help you save extra cash. 

Importance of Budgeting

Getting into debt is easy when we cannot or do not keep track of expenses. A budget will show you if you have a surplus or a deficit. It also helps you control your spending. With a strong budget in place, you only buy what you need.

You can use your surplus to pay off debts with larger interest rates. Talk to your financial advisor or even a trusted friend about how to create a realistic budget. You will get more tips on how to get rid of debt fast.

You can also find ways to earn extra cash in a month. This might include having to get a second job or working more hours.

A budget helps you to get rid of debt by forcing you to trim your expenses. Go over the list of items in your budget and eliminate any unnecessary expenditures or find more affordable alternatives. This may include dropping TV subscriptions, eating at home, and finding a cheaper phone plan.

If you want to know how to get out of debt on a low income, sticking to these steps above will help you achieve it.

Related: 189 clever ways to save money

When to Consider Debt Refinancing or Consolidation

Two of the most common options for reworking your debts are refinancing or consolidation.

Refinancing is replacing your old debt(s) with a completely new loan. The goal here is to get a lower interest rate. Many homeowners refinanced their homes as interest rates dropped in the years after the Financial Crisis of 2007-2008.

The latter means putting all debts into one single loan. This helps you avoid dealing with separate lenders. You will not be looking at different monthly and billing statements when they are all consolidated into one debt.

Think about the following factors before refinancing or consolidating your debt:

  • Has your credit report improved? This puts you in a favorable position with lenders. You can start a tangible process of getting rid of debt with a new lender offering better terms.
  • Are the current interest rates low? You can take advantage of this situation by moving your variable rate to a fixed rate or lowering your fixed rate. Just make sure to take any prepayment penalties and loan fees or costs into consideration.
  • Can you change your payment term? Extending the repayment timeline of debt does not help you become debt free. If you have an increased salary, pay off the debt within the shortest time possible.

Use the loan calculator at and compare 328 lenders who can offer debt refinancing with better terms.

Good Debt-Free Habits

  • Have an automatic savings account
  • Pay bills on time to avoid penalties and accrued rates.
  • Take a shopping list with you when you go shopping. This will help you avoid impulse buying
  • Track and record all expenses.
  • Freeze credit cards or pay your cards as you spend.
  • Live on less than what you make. Do not exceed your income when spending money.

These small habits will help you succeed on the journey to a debt-free life. It may take a time to clear all your debts, however, being focused on your goal and methodically moving towards it is the most important thing.

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Financial information reviewed byRoss Loehr - CFP®, MBA
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