How to Get Out of Debt

Is the stress of your debt keeping you up at night?

Remember, debt doesn’t have to be permanent.  You’re already on the right track to addressing debt by starting to research your options.

Where do I start?

Confronting your debt can make it seem less impossible to conquer. Start by determining a concrete number that you can work toward paying off.

First, total up how much you owe by making a chart of all your outstanding debts (even ones that don’t show up on your credit report, like those from family members). It can look something like this:

Once you have added up all your debt and come up with a monthly payment goal, you should create a payoff plan. First, turn on autopay where possible so that you don’t have to worry about missing payments on those accounts. Next determine which debt you will focus on paying off first. For example, this could be your debt that has the lowest balance or your debt that has the highest interest. Put as much money toward this debt as you can, and once it’s paid off, set a new debt to focus on and start again.

However, before you give in to paying the current interest rates on your outstanding debt, there could be ways to bring down your interest rates.

If you realize that you’re making high interest payments to multiple creditors, or if seeing all the separate lenders you owe money to has you feeling overwhelmed, debt consolidation could help get your debt under control.

Let’s first delve into some debt consolidation options before moving on to the final steps of your payoff plan.

How to consolidate your current debt

Debt consolidation means combining your existing debt into a single new debt. The result could be a lower monthly payment and a lower interest rate.

When you’re trying to get out of debt, you want to make the most of every dollar. If you qualify for a lower interest rate, consolidating your debt could save you money that you can put toward paying down the principal on your debt.

There are many options for debt consolidation, but here are a few commonly used methods:

1. Taking Out a Debt Consolidation Loan

debt consolidation loan is a personal loan that you use to pay off your existing debt. The debt consolidation loan is then usually paid off in fixed monthly installments at a fixed rate.

The interest rate that you qualify for will depend on factors such as your creditworthiness and ability to pay. If you qualify for a loan with a lower interest rate, a debt consolidation loan could offer you some relief from your higher-interest debt and decrease your number of outstanding bills.

2. Opening a Balance Transfer Credit Card

A balance transfer credit card consolidates your debt by letting you move your debt over to a new card that typically offers a low or 0% promotional interest rate on transferred balances for a given period.

Since your goal is to get out of debt, you should be sure to do your research because if you fail to fully understand the promotion, it could leave you in a worse position.

Two things to look out for:

Balance transfer fee: most of these cards require that you pay a balance transfer fee between 3 and 5% of the total amount that you are moving over to the new account.

How long does the promotional period last? If you cannot repay your debt within the promotional period, your interest rate could increase, leaving you right back where you started: paying high interest.

3. Negotiating a Debt Settlement

Debt settlement is the process of negotiating with your creditors to pay back only part of your debt. In exchange for a partial payment, your creditors agree to forgive the remainder of your debt. Sounds pretty good, right? Not really. Debt settlement could result in a bad mark on your credit score that’ll last for 7 to 10 years.

Debt settlement should be considered more of a last resort. If, back at step one, you totaled up all your debt and the number you came up with seemed absolutely out of reach, then you could consider looking into your debt settlement options.

How to stop going further into debt

This next step is about consciously changing your behavior and habits to ensure that you’re headed toward less debt, not more. Having a plan is great, but you’ll probably have to make some lifestyle adjustments to make that plan come to life.

For example, you could find that you currently don’t earn enough to keep up with the monthly payment goal you came up with earlier. This could mean making the tough decision to pick up extra work on the side or even a second job. 

Don’t be afraid to think big. Earning more can also mean you ask for a raise at work or start looking for a higher-paying job.

Your hard work will pay off—having a little extra cash can go a long way in your effort to get out of debt if you put it toward making extra payments (paying more than the minimum).

Making changes in your spending habits could help you get out of debt. One approach could be to try to move away from your credit card. Using cash whenever possible could help you minimize the chance of going into debt because you will be using available funds to pay for things immediately. Be realistic about what you can afford, and stop buying what you can’t.

How do you know if your plan is working? Make a habit of keeping an eye on your credit score to see if it’s improving and whether or not your debt amounts are decreasing. If you’re not seeing results, it’s okay to adjust your initial strategies.

Ways to help get out of debt—cutting costs

One last piece of advice: do your best to cut your costs. Where do you regularly spend money and how can you cut back on everyday expenses? 

Here are some quick tips:

If you have subscriptions to monthly services like beauty boxes or streaming services, consider canceling the ones you don’t use or really don’t need.

Coffee beans could be cheaper than single, marked-up cups of coffee. So, instead of buying that latte every day on your way to work, brew a pot of coffee at home when you wake up.

If you have an older house, you could benefit from air sealing the leaks in your doors and windows of your home. By doing this, you could save costs on your utilities in the summer and winter while controlling the temperature in your home.

Pull out old or outdated clothing from your closet that you don’t wear anymore. Sometimes, second-hand shops will accept certain pieces for cash or in-store credit.

In the summer, trade in your gym membership for an outdoor workout.

Though name brand may be your norm, consider buying off-brand or store-brand products. These products can be cheaper than the name brand products, and they are often of similar quality.

This isn’t a quick way to cut your costs, but here's a top recommendation we can make: look into your credit card debt consolidation options to see if you could be paying less in interest.

What’s next?

It’s time to conquer your debt.

You can take steps to make your debt more manageable, and it all starts here. Get to work on your strategy and payoff plan, and decide if you’re a good candidate for consolidation.

See how Marcus could help

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.