5 Key Strategies to Getting Out of Debt

Get Personal Loan Rates

on LendingTree's secure website

There are many ways to go into debt. You may charge up a credit card, pick up an auto loan to buy a car or get hit with medical bills. How to pay off that debt, though, isn’t always so clear. Thankfully, the path to a debt-free life doesn’t have to look the same for everyone.

Keep reading to discover five key strategies you can use to get out of debt. Pick the method that’s best for you and then find ways to supercharge your progress.

1. Debt snowball

The debt snowball approach is a common strategy you can use to pay down your outstanding financial obligations. It involves sorting your debts by their balances and then wiping them out one by one from the smallest balance to the largest.

Here’s how this method works.

  • Write out all of your debts, from the highest balance down to the lowest. Let’s say, for example, that you have three credit cards with varying balances and APRs.
    • Credit Card No. 1: $5,000 balance (22% APR)
    • Credit Card No. 2: $3,000 balance (14% APR)
    • Credit Card No. 3: $900 balance (20% APR)
  • You’ll pay the minimum monthly payments on each these debts. This is important to protect your credit and avoid late fees.
  • Then, funnel any extra money from your budget to the debt with the smallest balance (Credit Card No. 3 in the example above).
  • Once your first debt is paid off, rinse and repeat with the debt that has the next lowest balance on your list (No. 2).

There are two big benefits of the debt snowball method. First, by bringing debts down to zero faster, you lower your credit utilization. This may boost your credit score.

Second, it can be good for your morale to knock out an entire debt faster, even if it’s small. Living with debt is a normal part of life for many Americans. Deciding to go against the flow and paying down your debt requires steadfast determination. Don’t underestimate the psychological value of a debt elimination method that lets you celebrate your accomplishments more frequently.

Want to speed up your progress? If you can qualify for a low-interest rate personal loan to consolidate your debt, you might be able to reach your debt elimination goals faster.

2. Debt avalanche

The debt avalanche is another popular way to pay off debt. Instead of ordering your debt by balance, the avalanche approach calls for you to order your debt by interest rate.

Here’s how this method works.

  • Write out all of your debts, from the lowest interest rate down to the highest. For this example, we’ll assume you have the same three credit cards as in our previous example.
    • Credit Card No. 2: $3,000 Balance (14% APR)
    • Credit Card No. 3: $900 Balance (20% APR)
    • Credit Card No. 1: $5,000 Balance (22% APR)
  • Pay the minimum monthly payments on all of your debts.
  • Funnel any money left over in your budget to the debt with the highest interest rate (No. 1).
  • Once your first debt is paid off, move up the list to the debt with the next highest interest rate (No. 3).

Some people believe the debt avalanche approach will save you the most money. However, that isn’t necessarily true. Yes, you might save more on interest fees, but you would be wrong to overlook the value the debt snowball offers by potentially improving your credit faster. Good credit can help you save money in ways outside of your current interest rates.

3. Debt snowflake

In the United States, the average student loan debt is $32,731. In truth, trying to pay off large amounts of debt like that can be overwhelming. The debt snowflake strategy aims to keep you from feeling overwhelmed by focusing on the little things you can do everyday to make a difference in your debt burden.

The debt snowflake isn’t really an alternative debt elimination strategy like the debt snowball or avalanche. Rather, it’s a smart add-on tool that can help you to pay off debt more quickly.

Here’s how this method works:

  • Find small ways to save in your everyday routine. For example, you might skip your typical Starbucks run to save $5 per weekday.
  • You’ll then immediately apply any savings opportunities you create (like the extra $25 per week in the example above) toward the first debt on your list you’re trying to wipe out. The idea is that by putting the money toward your debt right away, you might save more interest. You also won’t risk being tempted to spend the savings you created on something else.
  • Continuing finding “snowflakes” until all of your debts have been paid off.

4. Cut spending

No matter which debt elimination method you decide is right for you, you can rev up your progress by finding more money in your budget to throw at your debt.

Need ideas on how to cut spending? These five ideas might help you start brainstorming:

  • Cut (or reduce) your cable bill.
  • Eat out less often.
  • Use apps, coupons and local sales to lower your grocery bill.
  • Cancel your gym membership or other recurring monthly costs.
  • Reduce entertainment spending by finding free events, borrowing movies and books from your local library, or having a game night at home instead of an expensive night out.

There are countless ways to find more money in your budget. Here are the types of wasteful spending you should also avoid.

5. Earn more

Another way to speed up your debt elimination strategy is to find ways to add more money into your budget. If you can commit to applying 100% of your new income toward your debt pay down goals, any extra money you earn could make a big difference.

There are tons of ways you can earn extra cash. Here are a few ideas to consider:

  • Work part time at home as a virtual assistant or freelancer.
  • Sell your unwanted or unneeded items online.
  • Drive for Uber or Lyft for a few hours each evening.
  • Start a part-time job.
  • Ask for a raise.

Full disclosure: Adding a side hustle (or two) onto your already busy schedule can be exhausting. However, if you track your progress and remember that you have an end goal in mind, the sacrifice will be worth it in the end.

Reward yourself for repaying debt

Here’s the truth: Paying down your debt is smart, but changing your financial habits can be painful. You may get tired of brown-bagging your lunch every day to cut spending. You may feel exhausted when you pick up a side hustle or part-time job to help you pay off your debt faster.

Just remember, these sacrifices can change your life for the better. You may be giving up what you want now, but doing so can help you to get the things you want in the long run.

In the meantime, remember to reward yourself. Yes, you want to cut spending, but there’s nothing wrong with working some small rewards into your debt elimination plan. For example, every time you pay off $1,000 worth of debt (or whatever number is right for you), you might allow yourself a small splurge.

Small rewards can go a long way toward keeping you motivated. Before you know it, you’ll have your debt knocked out and can hopefully carry some of those good savings habits into your future. Being financially freel is the biggest reward of all.

Comments and Questions

The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.