How to Get Out of Debt – A 10 Step Plan

So many of us find ourselves in debt without even realising.

But how do you get out of debt?

Follow this simple 10 step plan to get back on track with your finances.

1. Make a list

Before you can eliminate your debt, you’ll need to list all of your debts so that it is clear what needs to be repaid. All personal loans, credit and store cards, perhaps your car which is being paid off through financing, and any education costs you are repaying from your university course.

Next to each debt, list the amount owing, interest rate and minimum monthly repayment.

2. Don’t take on any more debt

Put simply, if you want to get out of debt, you need to stop borrowing money. Make a conscious decision to not use credit to fund your lifestyle. No more financing furniture or gadgets, no new credit cards. This will allow you to focus solely on the debt you already have.

3. Create a realistic budget and stick to it

It’s time to develop a budget that tracks your income and your expenses. This will show you if you have any income left over after paying your financial responsibilities. Look through your bank statements to determine your average utility and grocery costs.

If you are in the negative (called a deficit), you need to look at how you could trim your expenses. This might mean cancelling your Netflix subscription or gym membership, meal planning rather than ordering takeaway on weekends, and being conservative with your utility usage.

4. Set debt repayment goals

Once you have a list of your debts, and a budget showing how much money you have to put towards them, you can form debt repayment goals.

Knowing how much money you can contribute towards debt repayment each month will allow you to make a rough estimate of how long it will take you to get out of debt. 

This would be your final goal, but it’s good to set periodic goals to keep you motivated through the process. You might mark every $5,000 repaid as a goal.

5. Plan your repayments

Keeping in mind that you will need to to pay the minimum repayment on each of your debts, there are two approaches to organising your debt repayments.

The first is to list your debts from smallest to largest, regardless of the interest rate. Paying off your first debt will show you that you can get out of debt quickly by following your plan, and will help build momentum.

The second approach to debt repayment is called laddering, whereby you list your debts in order from highest to lowest interest rate. By paying off the debt with the highest interest rate first, you will save yourself the most money over time.

Whichever method you choose, remember that every time you pay off a debt, you have more money to put towards the next one.

6. Reduce your rates

Talk to your lenders and try to negotiate a lower interest rate. Alternatively you may consider consolidating debt into a single, low interest rate personal loan.

  • 7. Bring in extra money

You may want to consider taking out a second job, or working longer hours if you have a commission-based job.

You can also consider selling items that you don’t need. For example, is that second car really necessary?

This could earn you some money to put towards your debt in the short term, but it could also lower your expenses in the long term, and allow you to put more money towards repaying your debts each month. What about those items sitting in the cupboard collecting dust?

  • 8. Put any windfalls towards your debt

Just as we can find ourselves in debt without realising, we can also find ourselves with unexpected money at times. For example, getting a tax refund, receiving an inheritance or getting a bonus at work.

The best use of this money is to put it towards your debt.

9. Reward every achievement

Every periodic goal achieved, and every debt repaid, should be celebrated. This doesn’t mean a night at the casino, but something low-cost yet meaningful. A cup of fancy coffee, or your favourite dessert treat.

10. Celebrate your “debt free” status

You’ve passed the finish line. And your budget now has a surplus! Use the money you were putting towards debt repayment towards a savings account, to avoid going into debt again.


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