How to Get Out of Debt: A Step-by-Step Guide

If you are struggling with debt, you are not alone. Many people find themselves in debt at some point in their lives, and it can be overwhelming and stressful. However, with some careful planning and hard work, you can get out of debt and start living a debt-free life.

In this article, we will discuss the steps you can take to get out of debt, including the fastest way to get out of debt and the hardest debt to pay off. We will also address the number one cause of debt, the worst debts to have, and what constitutes an unhealthy amount of debt.

What are the 5 Steps for Getting Out of Debt?

The first step in getting out of debt is to understand your current financial situation. This means taking stock of your income, expenses, and debts (creating a budget). Once you have a clear picture of your finances, you can develop a plan to get out of debt. Here are the five steps you should follow:

Create a budget: A budget will help you understand where your money is going and where you can cut back. This will free up extra money that you can use to pay off your debts.
Prioritize your debts: List your debts from smallest to largest, and focus on paying off the smallest debt first. This will give you a sense of accomplishment and motivation to continue paying off your debts.
Negotiate with creditors: If you are struggling to make your payments, contact your creditors and see if they are willing to work with you. They may be willing to reduce your interest rates or set up a payment plan that works for you.
Consider a debt consolidation loan: If you have multiple debts with high-interest rates, consolidating them into one loan with a lower interest rate can save you money and make it easier to pay off your debts.
Stay committed: Getting out of debt takes time and hard work, but it is worth it. Stay committed to your plan and celebrate your successes along the way.

What is the Fastest Way to Get Out of Debt?

The fastest way to get out of debt is to increase your income and reduce your expenses. This means finding ways to earn extra money, such as finding a side hustle or selling items you no longer need. It also means cutting back on your expenses, such as eating out less and canceling subscription services you don't use. By increasing your income and reducing your costs, you will have more money to put toward paying off your debts.

I've linked a ton of articles to help you both save and make more money, check them out if you really want to lean into eliminating your debt.

What is the Hardest Debt to Pay Off?

The most challenging debt to pay off is usually credit card debt. Credit cards often have high-interest rates, which means that even if you are making your minimum payments, you may not be making much progress toward paying off your balance.

To pay off your credit card debt faster, focus on paying more than the minimum payment each month and consider consolidating your credit card debt into a lower-interest loan. You can also switch credit cards and transfer your balance. Some cards will offer an interest-free balance transfer, this can give you more time to get the debt paid down and more manageable.

What is the Number One Cause of Debt?

The number one cause of debt is overspending, typically caused by lifestyle inflation. When you spend more than you earn, you go into debt. To avoid overspending, create a budget and stick to it. Only spend money on things you need, and avoid impulse purchases.

To answer this question in a slightly different way, the highest % of household debt comes from mortgages. The average American mortgage balance is over $220,000, followed by auto loans at just over $20,000. These two types of debt typically don't result in someone being in bad debt that they need to dig out of, though it absolutely can.

What are the Worst Debts?

The worst debts are those with high-interest rates, such as credit card debt and payday loans. These debts can quickly spiral out of control and become unmanageable. If you have these types of debts, focus on paying them off as quickly as possible.

What is an Unhealthy Amount of Debt?

While the answer will vary depending on your individual circumstances, a general rule of thumb is that your debt should not exceed 30% of your income. If you find yourself struggling to make payments or feel overwhelmed by your debt, it may be time to seek professional help.

Conclusion

Getting out of debt can be a challenging process, but it's important to remember that it's possible. By creating a plan, living within your means, and staying motivated, you can take control of your finances and achieve financial freedom. Remember to stay focused on your goals, and don't hesitate to seek help if you need it.