Unless you're related to a billionaire family, chances are that you will eventually get into debt. It could come from anything—an accident, a decision to go to college, the choice to buy a house, medical issues... We've all been there.
Debt happens, and it's not a failure on your part if you have gotten into debt. What matters now is figuring out a way to get out of debt quickly and doing so without ruining your quality of life in the process.
Feeling lost? We decided to take a look at the best ways to get out of debt and weigh in on when they work best.
Stop adding onto that debt and pay more than the minimum balance on all your cards.
If you're just dealing with a little bit of debt, and it's actually quite manageable; you don't really have to employ too much strategy to get rid of that nasty ol' debt. Though it may not always be the fastest method, it is one of the easiest ways to get rid of debt.
The Verdict: It's a good option for small loads of debt, but there are other options that could be better. For example, you could pay off credit card debt faster using a Snowball Method.
Made famous by Dave Ramsey, one of the authors of the best personal finance books ever written, the Snowball Method is all about eliminating debt one source at a time.
Doing this is simple:
- Choose the highest interest rate debt you have, and pay as much as you can towards that debt. While you pay this one down, pay the minimums on all other forms of debt.
- Once you pay off that debt, use all the free money you saved from eliminating that debt to start working on the second most urgent debt. Pay the minimum on the rest of the debts you own.
- Rinse, repeat. The more debt you pay off, the more money gets freed up to tackle all the other debts. This makes debt vanish faster and faster, snowballing with every bill paid off.
This is so simple that even a child could do it. However, this does require you to have a job that pays enough to get some free cash—or at the very least, cut corners on your lifestyle enough to free up enough money to make a dent in your debt.
The Verdict: Good if you are in manageable debt or if you can pick up a side gig to make it manageable.
Get a 0 percent balance transfer card to halt interest and pay it off in installments.
This is one of the best credit-friendly ways to get out of debt, assuming that you have a good enough credit score to open up another credit card. Paying off interest is often what ends up causing so much issue and slows down your ability to pay down debt.
The way this works is simple...
- Get a new credit card with a long 0 percent APR introductory period. If you have a FICO above 650, this shouldn't be too hard to do. Long introductory periods are ideal.
- Transfer the balance of your current credit card over to the new one. This ensures that you won't have to pay extra interest and will shorten the time it takes to pay off debt.
- Try to pay the entire debt during the introductory period. This will be the fastest way to pay off a single credit card.
The Verdict: This is great for people who are looking to pay off a single credit card that's gotten out of control, but won't work for people who have tons of debt.
Let's say that you are currently working 40 hours per week, and you have a lot of debt that just isn't budging with your current budget. It happens to plenty of people, so you're not alone if you're dealing with that.
If you are struggling with debt and work ain't cutting it, then you're going to have to pick up a side gig. We suggest using all the money from the side gig to get out of debt.
This is the simplest way to get out of debt without lowering your standard of living. The cool thing about using a side gig to pay down debt is that it could be anything you want to do in your spare time. Who knows? It could actually turn into a business for you!
Become a super saver, and use your savings to pay off that debt.
When it comes to paying down serious debt, something almost always has to give. Either you're going to have to pay more of your paycheck to debt, or you're going to have to pick up a side gig to pay it off.
If you really can't handle doing any more work, don't worry. There are other options that you can look into, such as becoming a super saver. Super savers are people who squeeze their pennies until they scream. They do whatever they can to save money, and then put that money towards paying down debt.
Things you may want to consider, if you want to take this route, include the following:
- You may want to move back in with parents, or get a roommate. Housing is expensive, and if you can find a way to shed costs, then by all means, do.
- Start couponing and shopping sales. You should aim to never pay full cost for anything if you take this route.
- Opt for public transportation or carpooling. Gas prices are expected to explode, so you may as well try to trim the fat on traveling, too.
The Verdict: If you are desperate for a way to pay off loads of debt, then this will work. This will drastically reduce the quality of your life, though.
Also known as debt consolidation, this is one of the most common ways to get out of debt that may end up being too much for more traditional routes. This option involves taking out a low-interest loan and then using the money from that loan to pay off high-interest debts.
This route usually means lower interest rates, a single monthly payment, and of course, a lot more peace of mind. There's a lot less guesswork involved and way less "note to self" moments you'd need to work out.
Many companies offer debt consolidation as a service, but it's often not a good idea to try to use these. With many companies, the fees they charge could end up negating any benefit that you would get from consolidating it.
The Verdict: Good for large swaths of high-interest debt, especially if you DIY it. If you go through a debt consolidation company, you might want to tread lightly.
Refinance your debt.
If you've ever heard about a couple refinancing their home or doing similar, this is what they're doing. Refinancing debt is a good way to reduce the pressure of debt that has collateral and high payments.
This method of debt reduction works by getting a loan to pay off the remainder of the original loan. With the original loan paid off, you don't have to worry about collateral. The payments tend to be smaller but spred through a longer period of time.
Technically, this will get you in more debt before you get out of debt. However, the freed up money from payment savings can be used to pay off other debts that couldn't be refinanced.
The Verdict: Good for student loans and home debt.
During the housing bubble of 2008, a lot of people decided to buy homes they couldn't afford. Some lucky folks realized that they wouldn't be able to keep up the home payments they signed up for and decided to do something about it.
One of the easier ways to remove debt, if you're bogged down by installment payments on property you own, is to short sell the item that is causing you grief.
When you short sell something, you're selling it at the remainder of the money you owe or slightly less—which basically means you're having someone else take over your debt for you. It's a win-win. You get away from debt and someone else gets cheap goods.
The Verdict: Good for getting rid of home debt you can't really afford to pay.
If you're in dire straits, consider debt negotiation.
So far, all the ways to get out of debt we've covered will not have a negative impact on your credit score. However, there's a certain point where trying to pay your debts the normal way just won't happen regardless of how hard you try.
If you can barely make minimum payments, or if it's getting to the point where you have to decide between paying bills on time and paying rent, you're going to have to accept a loss on your FICO score.
Debt negotiation is rough, but it's doable—as long as you're dealing with unsecured debt such as credit card debt or a personal loan with no collateral. If the debt that's killing you has collateral, the banks will repossess the collateral if you try this route.
Here's how to negotiate debt like a pro:
- Stop paying the credit card bills. Yes, it will cause your credit score to suffer majorly. Save the money that would have gone towards minimum payments and put them aside.
- After four to six months, call the credit card companies or collection agencies. Tell them that there's no way you can pay the debt, and that you want to negotiate a write-off of remaining in exchange for a lump sum of money. Offer money that you saved up from payments in a lump sum.
- If they refuse to write off the rest of the debt, wait and ask again. Eventually, the collection agencies will accept the offer since they'd rather have some money than none at all.
The Verdict: Good as a next to last resort.
Sometimes, you just can't get rid of debt no matter how hard you try. For example, if you have $500,000 of debt, and you're only earning $18,000 a year, it's not going to be possible for you to eliminate that through normal means. You might not even be able to barter away debt.
If all the other ways to get rid of debt have failed, and it's just not getting any better, you need to declare bankruptcy. Bankruptcy is a legal means to get debt collectors off your back, get debt discharged, and just start fresh.
Not all forms of debt can be handled this way and you will have to have the declaration approved by a court. However, if student loan debt isn't your issue, this is a good way to get away from debt when all else fails.
The Verdict: If you can't find any other way to solve your debt problems, then you will need to declare bankruptcy. It's the "Worst Case Scenario" solution to everything but student loan debt.