How to Get Out of Debt: A Guide to Managing Debt

Credit can be a lifeline during tough times and a tool for financing big-ticket purchases. You might use it to cover an emergency here, a splurge there, and necessities like a car or college tuition. But debt balances can sneakily become difficult to manage, particularly when spread across multiple credit accounts.

You can suddenly find yourself in a cycle where you’re making minimum payments only to have interest charges wipe out your progress month after month. More than half of Americans with debt say it’s a constant source of stress. And for many, it’s a daily mental load that affects everything from sleep to relationships.

The good news? Although it can feel like you’re stuck, you have options. From reworking your budget to paying down high-interest balances first, this guide covers practical strategies for how to get out of debt.

Debt management is about taking control of what you owe. It starts with assessing your debt and building a plan to pay it down efficiently. Two common approaches are debt management plans and debt settlement services.

What Is a Debt Management Plan (DMP)?

A debt management plan is a structured payoff program, typically arranged through a nonprofit credit counseling agency. A certified counselor reviews your unsecured debts, negotiates affordable payments with your creditors, and sets up a consolidated repayment plan with a single monthly payment.

DMPs can be helpful if you’re overwhelmed. Credit experts do the negotiating for you and help create a plan that fits your budget. On the downside, the process often requires you to close credit accounts. And you may not be able to use or open new ones while the plan is in place, which is often three to five years.

DMPs vs. Debt Settlement

Debt settlement and debt management plans both aim to help you get out of debt. But the way they work and the risks involved are different.

DMPs are usually run by nonprofit credit counselors. You continue paying your creditors, but the counselor helps negotiate lower payments and consolidate them into a single monthly plan.

Debt settlement plans, by contrast, are typically offered by for-profit companies. They often require you to stop making payments and instead build up a lump sum. This pause in payments is meant to push creditors to negotiate, but it also increases your risk of credit score damage, late fees, aggressive collections, and even lawsuits.

While debt settlement may result in you paying less overall, it presents much more risk.

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Top Debt Management Strategies

Once you’re ready to get serious about paying down your debt, the next step is choosing your approach. If you’re not sure where to start, here are some popular (and proven) debt payoff strategies.

Debt Snowball Method

The debt snowball method involves organizing your debts from smallest to largest, according to their outstanding balances. You then:

•  Pay the minimum on all your debts and pay down the debt with the smallest balance.

•  Once the smallest debt is paid off, roll its minimum payment into the next smallest debt and put it toward the next smallest debt.

•  Repeat the process until all your debts are paid off.

The main advantage of this debt management strategy is the satisfaction that comes with paying off a debt in full. Early wins can be motivating and build momentum. The downside is that you might pay more in interest over time if you tackle your higher-rate debts later.

Debt Avalanche Method

The avalanche method involves organizing your debts by their interest rates, from highest to lowest. You then:

•  Pay the minimum on all your debts and make larger payments to the debt with the highest interest rate.

•  Once that debt is paid off, roll its payment into the next highest-interest debt.

•  Repeat the process until all the debts are paid off.

This debt management strategy usually saves more money over time, but it may take longer to see progress, which can be less motivating for some.

Balance Transfer

With a balance transfer, you move debt from one credit account to another, ideally one with a lower interest rate. Some credit cards, for example, offer 0.00% APR for 12 months on balance transfers. Transferring a balance to that card gives you time to pay it down interest-free. However, be sure to check for any balance transfer fees, which are often a percentage of the amount transferred. Also make sure you know what standard interest rate will apply once the promotional period ends.

Consolidation Loans

Debt consolidation loans let you combine multiple debts into a single installment loan. For example, you could use a $10,000 debt consolidation loan to pay off three credit cards with balances of $2,500, $4,000, and $3,500.

You get simpler payments and a predictable payoff. And if you lock in a lower interest rate, you could save money over time. Paying off revolving debt with an installment loan may even help your credit, since it can improve your credit mix and lower your credit utilization.

Emergency Funds

An emergency fund is money set aside for unexpected expenses like medical bills or car repairs. Experts recommend stocking it with at least three to six months’ worth of living expenses.

If your emergency fund is in good shape, you might consider using it to pay off high-interest debt. Just be sure to replenish it as soon as possible so you don’t fall back into debt when the next emergency strikes.

How to Create a Personalized Debt Management Plan

You can hire a professional to help you get out of debt or take on the challenge yourself. If you want to DIY it, here are five key steps to creating a solid debt management plan.

1. Assess Your Total Debt

Before you fix a problem, you need to understand it. With managing debt, that means taking inventory of what you owe. List out all your debts and include the creditor’s name, outstanding balance, interest rate, minimum payment, and estimated months to pay off.

	Outstanding Balance	Interest Rate	Minimum Payment	Months to Pay Off
Credit Card #1	$1,500	28.00%	$75	28
Credit Card #2	$4,000	30.00%	$175	35
Credit Card #3	$1,200	35.00%	$60	31
	$6,700 (total)	31.00% (average)	$310 (total)	35 (months until all are paid off)

2. Review Your Budget

Next, take a hard look at your monthly budget. Create an itemized list of all your income and expenses. You can find budgeting templates online that make this step easier. Figure out how much money is left over each month after covering your regular expenses.

From there, decide how much of the surplus you’ll put toward your debt payoff plan. Be realistic, though. Set a goal you can stick to through good and bad months. If the number feels too low, consider cutting some expenses or exploring ways to generate extra income.

3. Choose Your Strategy

Now that you’re crystal clear on how much debt you have and the monthly income you can put toward paying it off, choose your approach. For example, if you’re motivated by quick wins, the snowball method may be a good choice. Or, if you value lower costs over quick wins, you might go for the avalanche method. You could also look into whether consolidating or transferring debts makes sense for your situation.

4. Solidify Your Plan and Timeline

The next step is to define your plan and payoff timeline. After choosing a strategy, map out the steps and how long they’ll take. Create a timeline with a start date, finish date, and milestones along the way. If you want a little motivation, for example, you might celebrate every $1,000 of debt you pay off.

5. Track Progress Monthly

Stick to the plan each month, paying at least the planned amount, and track your payoff progress. Use a manual spreadsheet, template, or mobile app—whatever works best for you. If you deviate from your plan by paying more or less one month, note that in your tracker and update your timeline accordingly.

The Takeaway

Debt isn’t always a bad thing. It can help you build credit and move toward bigger goals. But it’s easy to feel trapped if your discretionary income is tight and you’re stuck in a cycle of just making the minimum payments.

The good news is that there are steps you can take to get out. A strategic debt management plan can put you on the right path and guide you steadily toward financial freedom. If you need support along the way, SoFi has a lineup of tools and personal loan options to help you reach your goals.

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