How to Get Out of Debt in 8 Steps (Even if You’re Broke or Low Income)

If you’re in debt, you’re not alone. According to the latest Federal Reserve data, cumulative household debt in America has increased since last quarter and now stands at a whopping $17.94 trillion.

It’s not at all uncommon to be paying off student loans, credit card debt, a car loan, a mortgage, medical bills, and more all at once.

And if you’re saddled with so many monthly payments, all growing in interest, it’s also common that you’ll end up just making minimum payments.

But how can you throw more money at your debt, when you’re barely making ends meet right now? It can be overwhelming.

We’ve got a simple action plan for you here, and we’ll be breaking everything down into small, bite-sized steps so you can make progress on paying down your balances and take control of your financial future today. (Seriously, if you have 10 minutes, you can get step #1 knocked out today.)

Table of Contents

1. 1. Write down all your debt
2. 2. Assess your spending and make a budget
3. 3. Choose the debt payoff strategy that’s right for you
4. 4. Negotiate with creditors
5. 5. Get credit counseling
6. 6. Talk to a debt relief company
7. 7. Consolidate and refinance when it makes sense
8. 8. Get a bigger shovel
9. Bonus: Advice for Your Current Financial Situation
   1. You’re broke and have no money
   2. You have a low income
   3. You’re getting divorced
   4. You have high medical bills
   5. You’re drowning in student loans
   6. You have high credit card debt
   7. You have tax debt
10. FAQ

1. Write down all your debt

The first and most important step when you want to get out of debt is to add up your debt total. Take out a sheet of paper or open a spreadsheet and write down your creditor’s name, the amount you owe them, your interest rate, and your monthly payment.

Recent research shows nearly half of Americans don’t know the interest rate on their credit cards. Finding this information is important because it can help you with the next step, which is to identify a debt repayment strategy.

2. Assess your spending and make a budget

While you are developing your debt payment strategy, it’s also important to assess your spending and create a budget. If you’re trying to cut your expenses, the three areas to focus on are housing costs, vehicle costs, and food costs. These three categories tend to be the biggest drains on a budget. 

When you’re reviewing your spending and creating a budget, ask yourself whether there are ways to reduce your expenses. For example, can you move into a smaller home? Is there a more affordable car you can drive? Can you order out less? When you cut costs, you can reallocate those funds and accelerate your debt payoff journey.

3. Choose the debt payoff strategy that’s right for you

The two most common debt repayment strategies are the snowball method and the avalanche method. With the snowball method, you pay off your debts from smallest to largest, which builds momentum and allows you to get quick wins early in your debt repayment journey.

The avalanche method is when you pay off your debts from the highest interest rate to the lowest interest rate. When you do this, you save money in the long term because you’ll spend less in interest. To decide which method is best for you, use an online calculator to compare the debt payoff timeline and the total amount you’ll spend in interest.

When you	What to do
Are broke and have no money	Focus on reducing expenses and increasing income; Consider debt relief as a last resort
Have a low income	Use the snowball method and consider adding a side hustle
Are getting divorced	Hire an attorney
Have high medical bills	Negotiate with providers and hospitals; Consider debt relief as a last resort
Are drowning in student loans	Consider consolidating, refinancing, or enrolling in an income-driven repayment plan; If you’re drowning in private student loan debt, consider debt relief as a last resort
Have high credit card debt	Consider a balance transfer card or use the avalanche method; Consider debt relief as a last resort
Have tax debt	Explore IRS programs such as payment plans, Offer in Compromise, or CNC status; Consult a tax professional

4. Negotiate with creditors

Interest costs and late fees can add time to your debt repayment journey, so another step you can take is to negotiate with your creditors. If you have debt in collections, call the debt collection company and offer a settlement. If you have debt with high interest rates, call your credit card company and ask whether it can lower your interest rate.

If you aren’t comfortable taking this step on your own, the next steps may be the better options for you.

5. Get credit counseling

If you need assistance with paying down your debt, you can work with a certified credit counselor. A credit counselor can help create a payment plan for you. The National Foundation for Credit Counseling is a nonprofit that has more information about the process and can connect you with a counselor who can help you.

6. Talk to a debt relief company

Debt relief companies can be an option for managing overwhelming debt, especially for those unable to keep up with monthly payments and struggling to negotiate with creditors on their own. National Debt Relief, Freedom Debt Relief, and Accredited Debt Relief specialize in negotiating with creditors to settle your debts for less than the full amount owed.

These services come with several pros and cons. Debt relief companies typically require you to stop making payments to creditors, which can further damage your credit score. These companies also charge fees—often 15% to 25% of the settled debt—which adds to the overall cost of the process.

Debt relief companies may not be the best solution for everyone, particularly for those who can manage their debt through other means like the snowball or avalanche methods, consolidation, or refinancing. However, they can provide relief for borrowers facing severe financial hardship who need assistance navigating debt negotiations. Before choosing this path, ensure you understand the fees, risks, and potential impact on your credit score.

7. Consolidate and refinance when it makes sense

Another strategy that can accelerate your debt repayment journey is to consolidate or refinance your debt. Consolidating is when you combine several debt payments into one. You can do this by getting a balance transfer credit card, taking out a personal loan, or consolidating your federal student loans. 

Refinancing is similar; its goal is to reduce your interest rate by moving your balance to a new loan. Refinancing has several pros and cons, especially when it comes to student loans. It’s important to take the time to research whether this method would work for your personal situation.

8. Get a bigger shovel

In addition to creating a budget, cutting expenses, and consolidating or refinancing your debt, find ways to earn more income. Whether you start a side hustle or take on additional hours at work, remember you don’t have to work extra hours forever. However, taking on side jobs for a short period can help you achieve your goal of being debt-free faster.

Bonus: Advice for Your Current Financial Situation

You’re broke and have no money

Having no money and being broke is a difficult position to be in. If this is you, focus on increasing your income and reducing your expenses. Working a few extra hours can go a long way in creating breathing room in your budget.

However, if your debt feels insurmountable, National Debt Relief or a similar company could assist. It can help you negotiate lower payments or settlements with creditors, but be aware of the potential impact on your credit score.

You have a low income

If you have a low income, look for ways to cut your expenses and increase your income. The snowball method would work best for debt repayment because you can start by paying off your smaller debts, which will free up cash flow to tackle your larger debts in the future.

You’re getting divorced

If you are getting divorced, hire an attorney. An attorney can assess your current financial situation, tell you what debt you’re responsible for, and refer you to resources, such as a credit counseling service, that can assist you. The U.S. Department of Justice also has a list of pro bono legal service providers if you need financial assistance.

You have high medical bills

Many medical providers and hospitals are willing to work with people who have unpaid hospital bills. Many offer payment plans or financial assistance. What’s important is to contact them and ask what your options are.

If you’re unable to negotiate or have a combination of other debts, consider working with a debt relief company. Freedom Debt Relief, which specializes in personalized plans and is best for smaller debts (under $10,000), might be a helpful resource for tackling high medical expenses.

You’re drowning in student loans

If you have federal student loans, consider enrolling in an income-driven repayment plan, which can help make your bills more affordable.

If you have private student loans, you might be able to refinance them at a lower interest rate. Debt relief companies National Debt Relief and Accredited Debt Relief can help negotiate settlements with private student loan companies.

You have high credit card debt

If you have credit card debt, consider applying for a balance transfer card. This card offers the opportunity to pay down debt with an introductory 0% balance for a set period of time. The avalanche method is also a solid technique because credit card debt has a high rate, which means you’ll likely tackle it first before other debts.

If consolidation or balance transfer cards don’t work for your situation, a debt relief company could help. Accredited Debt Relief, known for its excellent customer experience, could negotiate settlements on your behalf, potentially lowering your overall debt burden.

If you’re feeling overwhelmed by high-interest debt, remember: You’re not alone, and you shouldn’t feel bad about your situation. 

The first step is to create a repayment plan that fits in your budget while also considering:

• Negotiating with creditors
• Creating a spending plan along with realistic goals
• Considering a side job or part-time income
• If needed, consulting a debt counselor or therapist who specializes in behavioral spending (specifically if spendthrifting—spending money carelessly or extravagantly—is one of the barriers)

Erin Kinkade, CFP®

You have tax debt

If you have tax debt, start by contacting the IRS to explore available programs, such as:

• Payment plans: These allow you to pay your balance over time in smaller, manageable amounts.
• Offer in Compromise (OIC): If you can’t pay the full amount, you may qualify to settle your debt for less than what you owe.
• Currently Not Collectible (CNC) status: If paying your debt would cause severe financial hardship, CNC status pauses collection efforts.

It’s important to act fast to avoid penalties and interest from compounding further. Working with a tax professional, such as a reputable tax relief company, can also help you navigate these options and find the best path forward for your situation.

FAQ

What is the fastest way to get out of debt?

The fastest way to get out of debt often involves a combination of aggressive repayment strategies, such as the debt snowball or avalanche methods. The debt snowball approach targets your smallest debts first, giving you quick wins, while the debt avalanche targets debts with the highest interest rates first to reduce overall interest costs. 

To accelerate repayment, consider increasing your income through side gigs, selling unused items, or cutting nonessential expenses. Refinancing or consolidating debt into a lower-interest loan may also help if it reduces your monthly interest payments.

Can you pay off $10,000 of debt in a year?

Yes, paying off $10,000 of debt in a year is achievable with a focused plan and disciplined budget. This would require an average monthly payment of about $834. Cutting unnecessary expenses, boosting income, and prioritizing debt repayment can help reach this goal. Using tax refunds, bonuses, or side income to make extra payments can also accelerate progress.

Can you pay off $50,000 of debt in a year?

Paying off $50,000 of debt in a year is possible, but it requires a high income or significant lifestyle adjustments. On average, you’d need to pay around $4,167 per month to meet this goal. Strategies might include a strict budget, substantial income increases (e.g., overtime, side jobs), or negotiating lower interest rates with creditors. 

Refinancing or consolidating debt to lower your monthly interest might also help. For many, paying off $50,000 within a year might be more realistic if they can apply a large portion of their income to debt while minimizing other expenses.