Step 1: Assess Your Debt Situation

The first step in getting out of debt is understanding exactly how much debt you owe. 

• List all your debts – Gather statements for all your debts (credit cards, loans, etc.). Write down the total amount owed for each one, including interest rates and minimum monthly payments.
• Identify due dates – Note the due dates and minimum payments for each debt to avoid late fees and potential damage to your credit score.
• Check your budget – Look at your monthly income and expenses to figure out how much you can realistically put toward paying off your debts.

Step 2: Create a Budget

Creating a budget is a powerful tool that helps you control your spending and free up money to pay off debt. 

• Track your income and expenses – List your sources of income and every expense you have. This includes rent/mortgage, utilities, food, transportation, entertainment, and more.
• Cut unnecessary costs – Look for areas where you can reduce spending. For example, you might cut back on eating out, subscriptions, or impulse buys.
• Allocate funds for debt repayment – Set aside a portion of your income specifically for paying down debt. Even a small amount added to your debt payments can make a difference.

Step 3: Choose a Debt Repayment Strategy

There are a few strategies for tackling debt, and choosing the one that fits your situation is essential. The two most common strategies are:

1. The Debt Snowball Method

Dave Ramsey’s snowball method involves paying off your smallest debt first. 

• Pay off the debt with the lowest balance while making minimum payments on other debts.
• Once that small debt is paid off, move on to the next smallest debt, and continue until all your debts are paid off.

The advantage of this method is the motivation you gain from seeing your debts disappear one by one. It builds momentum and can help keep you motivated throughout the process.

2. The Debt Avalanche Method

The debt avalanche method focuses on paying off the debt with the highest interest rate first. 

• Pay extra toward the debt with the highest interest rate while making minimum payments on other debts.
• Once the high-interest debt is paid off, move to the next highest interest rate, and continue until all your debts are cleared.

The advantage of this method is that it helps you save money in the long run, as you’ll pay less in interest overall. However, it may take a bit longer to see progress, which can be less motivating for some.

Choose the method that works best for you, or even combine both strategies to keep yourself motivated while minimising interest payments.

Step 4: Cut Back on Spending

To get out of debt faster, you’ll need to free up as much money as possible. Cutting back on your spending is one of the quickest ways to do this. Here are a few tips:

• Avoid new debt – Stop using your credit cards or taking out new loans while you’re in the process of paying down existing debt.
• Cook at home – Instead of spending money on takeout, try cooking simple meals at home.
• Cancel subscriptions – Review your monthly subscriptions and cancel any that aren’t essential (streaming services, gym memberships, etc.).
• Use cash – Consider using cash for your purchases to help limit unnecessary spending.

Living below your means and being conscious of where your money goes can accelerate your debt repayment.

Step 5: Increase Your Income

If you’re able to, finding ways to increase your income can also help you pay off debt more quickly. Here are some ideas:

• Take on a part-time job – Look for flexible side hustles like freelancing, tutoring, or delivering food.
• Sell unused items – Go through your belongings and sell items you no longer need. 
• Start a small business – If you have a hobby or skill, consider turning it into a business or offering services to others for extra income.

Step 6: Consider Consolidation or Refinancing

Do you have multiple debts with high interest rates? Debt consolidation or refinancing might be an option to simplify and lower your payments.

• Debt consolidation involves combining multiple debt repayments into one affordable monthly payment. Individuals who are over-indebted would benefit the most from debt consolidation, as they will not qualify for a consolidation loan.
• Refinancing involves getting a new loan with better terms to pay off existing debts, however you must have a good credit score and not be over-indebted.

These options can reduce your interest rates and make your payments more manageable, but make sure you understand the terms and fees before proceeding.

Step 7: Stay Consistent and Be Patient

Getting out of debt is a journey that takes time and commitment. It won’t happen overnight, but with consistency, you can reach your goal. Stay on track by setting realistic goals, staying focused, and celebrating small wins. 

Step 8: Seek Help If You Need It

If your debt feels overwhelming, don’t hesitate to seek professional help. Debt counsellors can help you create a personalised debt repayment plan and guide you through the process. They can also help negotiate with creditors and make sure you’re staying on track.

Zero Debt can help you get out of debt. Contact us for more information on our debt counselling services.