7 Steps to Get Out of Debt

Debt is a common factor in modern life. This can be good or bad, depending on your financial situation and personal goals. Each person or family needs to decide the level of financial risk that they want to have or can manage.

Some debt can actually be used to build credit and improve your credit score. Depending on your individual circumstances this could include items like a mortgage or an auto loan. However, it can also be overused and damage your credit because of late payments or having too much overall compared to income.


If debt is causing you financial pain, it may be time to work toward reduction or elimination. Take a look at your personal finances and see where your money is going. It is always good to know your spending patterns.

Determine where you are spending your money. This can help you discover the source of your financial pain. There is definitely a difference between too much overall debt and just too much discretionary spending. By knowing where your money is going, you have a better chance at creating a workable budget and reducing or eliminating your financial pain source.

If debt is the issue, you have the opportunity to make decisions regarding it. Analyze whether it is helping you or hurting you. Chances are good that if the situation is too much credit card spending, it will also hurt your credit in the long term. At that point, you may want to look at your repayment options. Those options include a DIY plan, a personal or consolidation loan, credit counseling, settlement, and as a last resort, bankruptcy.


Most people follow similar approaches during repayment no matter which route they take. By creating and following a plan you give yourself the best chance at actually completing your repayment plan. Here’s one typical approach:

  1. Set your goals – decide what you want to accomplish through debt reduction
  2. Strategize – determine which route will get you to your goal the quickest
  3. Create a complete budget – know how much you can spend on all your expenses
  4. Check and correct your credit reports – see if there is any damage to your credit score
  5. Discretionary spending – reduce or eliminate it for the short term
  6. Freeze impulse purchasing – especially if credit cards are your source of financial pain
  7. Stick to your plan – as much as possible given your life circumstance

Another strategy, although a little more drastic, is finding a way to earn additional income. A second job or other source of side income can reduce the repayment time needed. Even with more income, you still need to stick to your overall repayment plan.


A DIY strategy involves considerable discipline. While it may look like the easiest option (and it is for some people), it can also take the most time. You can either pay off your lowest debt totals first (snowball) or your highest interest rates first (avalanche). No matter which approach you take, you will see results slowly but steadily.

A consolidation or personal loan may seem like the wrong approach to repayment. However, this type of loan is one way to reduce the number of payments while also reducing your overall total. Particularly if you are repaying credit cards, a consolidation or personal loan can often reduce the overall rate of interest. However, be aware of the term length as that directly determines the total amount of interest paid.

Settlement is a bit more drastic and is often necessary if a debt has been turned over to a collection agency. With this approach, a lower repayment total is accepted by the creditor. This step can have a negative impact on your credit score so it is best to talk to a professional before using this option.

Bankruptcy is a very complicated situation. You need to work with a qualified specialist attorney. This approach will definitely negatively impact your credit but it is possible to recover and rebuild your score.


Once you have determined the best repayment method, make sure you stick to your plan. This is especially important if you are using a loan, counseling, or settlement as your method of repayment.

During your repayment process it is important to reward yourself for meeting your repayment goals. For example, when you have paid off your first credit card use cash to treat yourself to a favorite meal or some other affordable indulgence. This can make it easier to work through the difficulties of repayment.

Once you have repaid everything possible (like all credit cards but not your mortgage), it is important to keep in mind the discipline that helped you in the process. Drastically reduce or eliminate your credit card use, especially for impulse purchases. Work to use cash as much as possible.

You may be having some difficulty deciding which repayment strategy would be best for your situation. MONEY FCU offers free financial coaching and has three financial coaching specialists on staff. Take advantage of our experience and talk with one of our coaches today. Make an appointment by contacting us today via phone, chat, or email. You’ll be glad you did.

Emerging from financial pain is a significant victory, one that too few people actually enjoy. Take the time to congratulate yourself on a major accomplishment!

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