How to Get Out of Debt: 8 Strategies That Actually Work

By Sam Swenson | Updated March 17, 2023
reading time 5 min read
Woman in orange sweater holding a credit card and working on her laptop

Anyone has the potential to rack up debt.. If you’ve ever borrowed money to go to school, buy a home, cover an emergency, or buy basic necessities, you may be having a hard time paying it back

But you’re certainly not alone. As of Q4 2022, total household debt in the U.S. hit a high of $16.90 trillion.

Average American debt by generation

The average American has $96,371 in debt, which includes different types of borrowings like credit cards, personal loans, student loans, and mortgages.

According to recent data,  the average amount of debt by generation is as follows:

  • Gen Z (1997 – 2012):  $20,803
  • Millennials (1981 – 1996):  $100,906
  • Gen X (1965 – 1980):  $146,164
  • Baby boomers II (1955 – 1964):  $95,607
  • Silent Generation  (1946 – 1954):  $39,859

When you have debt of any amount, you might feel like the odds are stacked against you.. 

It may take some time—and a hard look at your finances–but it is possible to get off the debt hamster wheel.

To help you create a path to better finances, check out our tips on how to get rid of debt once and for all.

How to pay off debt step-by-step

Ready to get out of debt? Check out our steps below to pay off debt and achieve financial freedom.

1. Learn the full scope of your debt

If you’ve been pretending your debt  doesn’t exist, it’s a good idea to start facing the issue head on. 

Start by collecting all your bank and credit card statements from the past six months. Then jot down each recurring debt payment as well as the principal loan balance for each. 

In addition to listing all your debts and their monthly payments, make sure to also note the associated interest rate for each. You should also note if any of your debts are in deferment or on a special repayment plan. 

2. Organize your debt

After you make a list of your debts and their related details, use the list to help you prioritize the debts to tackle first. You can organize your debt in several ways to help  and efficiently. 

Experts suggest tackling debts in this general order: high-interest debt first, non-deductible debt, low-interest debt next, and tax-deductible debt last. The theory here is that you won’t receive any benefit for hanging on to high-interest or non-deductible debt, but you’ll at least receive some benefit if you keep debts with tax-deductible interest. 

3. Find areas of improvement

To make sure you understand the depth and breadth of your financial circumstances,  check your credit report from each of the three major credit bureaus—Experian, Equifax®, and TransUnion®

It’s essential to check each report because some lenders don’t report credit activity to all three bureaus. If you only check one or two you might miss important details. 

Check each report for your credit score, current loans, lines of credit, unknown issues, and possible mistakes by the lender. 

Pro tip: You can access one free yearly copy of your credit report from each bureau through

4. Make a plan for paying off debt

There’s no one-size-fits-all solution for paying off debt. To help you get started, we’ve created this list of eight ways to get out of debt for the final time.

Adjust your budget

In your quest to get out of debt, consider your budget to be your North Star.  By adjusting your current budget to accommodate additional debt payments, you can make more progress every month. 

When you review each item in your budget, ask yourself: is this a need or want? Highlight items that fall more into the  “want” category—items you can reduce or cut out completely. 

Then, use the “freed-up” money to make additional payments on your outstanding debt beyond just the required amount. 

Pay more than the minimum payment

If you’re able to free up some extra money, use it to pay more than just the monthly minimum on your debts. This  will help you save interest expense and can also help you get out of debt sooner.

For example, say you have a $10,000 balance on a credit card with a 15% interest rate and a $250 minimum monthly payment. If you only pay the minimum each month, it’ll take you almost five years to pay it back—a period over which you’ll also pay $3,949 in interest.

If you’re able to free up $100 by bumping up your monthly payment to $350, you can repay the debt in only three years and pay $2,449 in interest. That’s a $1,500 savings! 

Use the debt snowball method

You can also use the debt snowball method to help get out of debt. With this method, work on paying off your small debts first in order of principal balance—and regardless of the interest rate. This helps build psychological momentum around paying off debt. Once the smaller debts are settled, tackle each larger debt in order.

As you work on paying off the debt you’re targeting, only make the minimum payment on the other debts. Once you’re done paying off the first debt, you move onto the next-smallest debt on the list and put as much money toward it until it’s done.

Repeat the process with each of your smaller debts until you’re ready to tackle the large debts. 

Pro tip: Avoid using this method if you have a payday or  title loan because these loans typically have higher-than-market interest rates. Consider paying them off ASAP.

Refinance your debt

To pay off your debt faster—and possibly save money on interest at the same time—consider refinancing your debt with a debt consolidation loan

A consolidation loan is a type of personal loan you can use to combine several debts with higher interest rates into a new loan with a single monthly payment, preferably with a lower interest rate. You can refinance credit card debt, mortgages, auto loans, personal loans, and student loans, too.

Use a financial windfall to pay off your debt

A financial windfall is a large sum of money that you receive suddenly. You might get a windfall from a tax refund, work bonus, gift,  stimulus check, or inheritance. Inheritances tend to be considered financial windfalls to a higher degree than the other examples.

.You can use the money however you choose, but if you have a significant amount of debt, you could use your financial windfall to pay off at least some of your outstanding obligations.. 

Negotiate a debt settlement

If you have one or several debts with delinquent or late payments—and you’ve exhausted a lot of the other debt payment methods—a debt settlement can be a possible solution. . 

With debt settlement, you negotiate with a debt collector to potentially satisfy your debt  for less than you originally owed. Do your research and create a realistic proposal. This strategy works if you have debts with payments at least 90 days late.

It’s important to note that debt settlement can be risky because you’ll keep  missing payments as you go through the negotiation process. The more payments you miss, the more damage to your credit score. Plus, there’s no guarantee that the debt collector will accept the proposal or give you a deal at all.

Get a side job

If you have a special skill or passion, consider taking on a side hustle to help you earn extra money to pay off your debt. Luckily, in this day and age you can usually find a side gig that allows you to work from home.

If the idea of working a side gig or job sounds like too much, commit to working only a reasonable amount of additional time  so you can earn extra money without feeling too overwhelmed.

Work with a counselor

Sometimes, it helps to partner with someone to solve a problem. If you’d like guidance, and you’re okay with paying some money for credit counseling services, work with a credit counseling firm or nonprofit organization to help you get your affairs in order. 

These organizations will help you create a debt management plan, help streamline your debt payments, and, hopefully, help you save a lot of money in interest.

So, what’s the best way to pay off debt?

The answer depends on your personal financial situation. The methods and strategies mentioned above can all be solid options to help you get out of debt, but ultimately getting out of debt will depend on you changing your spending habits. With enough time and practice, it is possible! 

This content is general in nature and is provided for informational purposes only. Upstart is not a financial advisor and does not offer financial planning services. This content may contain references to products and services offered through Upstart’s credit marketplace.

About the Author

Sam Swenson

Sam is a fee-only financial planner, CPA, and freelance writer. After nearly a decade in various Wall Street roles, Sam found a niche in creating objective, accessible, and actionable financial plans for everyday people. Sam has also published long- and short-form personal finance and investment planning content on various websites across the internet. Outside of work, Sam enjoys running, biking, reading, and philosophy, as well as spending time with his wife, daughter, and goldendoodle.

More resources you may be interested in

The Top Reasons to Consider Refinancing Your Mortgage
The Pros and Cons of Refinancing Your Student Loans
What to Know About Debt Consolidation Loans

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