How to get out of debt: A practical step-by-step guide

Debt is a common part of modern life. From credit cards and personal loans to unpaid bills and “buy now, pay later” schemes, it’s easy to feel overwhelmed when balances begin to pile up. But no matter how deep you are, getting out of debt is possible. With the right mindset, information, and strategy, you can take control of your finances and build a better financial future.

This guide offers practical steps, helpful strategies, and motivational insights to help you become debt-free and stay that way.

1. Understand what you owe

The first step in getting out of debt is knowing exactly what you’re dealing with. It might feel uncomfortable, but gaining clarity is crucial.  Create a debt list including:

• Who you owe money to
• Total balance owed
• Minimum monthly repayments
• Interest rate and due dates
• Type of debt (credit card, loan, utility bill, etc.)

This will help you see the full picture and prioritize your actions. Don’t forget to include small or irregular debts such as unpaid parking fines, overdue subscriptions, or “buy now, pay later” purchases.

2. Stay motivated

Getting out of debt is not just about numbers—it’s about commitment.

• Visualize your why: Whether it’s financial freedom, reduced stress, or saving for a goal, remind yourself daily.
• Reward yourself: Set small milestones and treat yourself when you reach them (reasonably!).
• Track your progress: Watching your debts decrease can be incredibly motivating.

3. Get accountability

It’s easier to stay on track when someone is in your corner.

• Ask a trusted friend, family member, or colleague to check in with you weekly or monthly.
• Join online communities or forums where others share their debt-free journey.
• Consider working with a free financial counsellor—they provide support without judgment.

4. Build a starter emergency fund

Before you aggressively pay down debt, build up a small emergency fund — an amount that covers three months of basic expenses is a good place to start. This will prevent you from having to take on more debt if an unexpected expense comes up. Read also: What Is an Emergency fund and what is it for?

5. Create a budget that works

To pay off debt, you need to free up money. A budget shows you where your income goes and helps you redirect cash toward debt repayment. Steps to budget effectively:

• List your income sources (salary, benefits, side gigs)
• Track all expenses for at least one month
• Separate needs from wants
• Identify where to cut back (subscriptions, eating out, impulse buys)
• Allocate a fixed amount to debt payments each month

Use budgeting apps or spreadsheets to simplify this process. Read also: How to budget: A 5-step guide to take control of your money

6. Prioritize your debts

Not all debts are equal. Some should be tackled first due to higher risk or higher cost. High-priority debts include:

• Rent or mortgage, utility bills,  car payments (if the car is essential) and government debts (e.g., taxes, fines).

If these are not paid, the consequences can be serious, such as eviction or loss of essential services. And over time, your credit score may be reduced and, in more serious cases, you may have to file for bankruptcy.

7. Choose a debt repayment strategy

There are two popular strategies for paying off multiple debts:

The snowball method

• Pay off your smallest debt first while making minimum payments on the rest.
• Once that debt is gone, roll that payment into the next smallest debt.

This approach is best for those who need motivation from quick wins, as it builds momentum and confidence.

The avalanche method

• Pay off your highest-interest debt first.
• Once it’s paid, move on to the next highest interest debt.

This approach is best for those focused on efficiency and total cost reduction, as it saves more money in the long run.

A good tip is to choose the method that suits your personality and keeps you moving forward.

8. Consider debt consolidation

If you have several high-interest debts, combining them into a single loan with a lower interest rate may help.

Benefits:

• Simplifies your finances (only one monthly payment)
• May reduce your total interest paid
• Can offer a fixed payoff date

Be cautious! Only consolidate if the new loan has better terms, and avoid racking up new debt after consolidation. Read also: What is a loan? What it means, how it works, and what to watch out for.

9. Negotiate with creditors

Many lenders are willing to work with you if you’re upfront about your situation.

You can negotiate:

• Lower interest rates
• Waived fees
• Lower minimum payments
• Temporary payment pauses (hardship arrangements)

This is a good strategy if you are experiencing financial hardship and would like to discuss alternative payment arrangements.

Lenders may offer:

• Interest-only periods
• Reduced repayment plans
• Temporary forbearance

10. Avoid new debt

As you work on paying off your existing debts, avoid taking on new ones.

Strategies to help:

• Cut up or hide your credit cards
• Remove saved card details from online shopping platforms
• Stick to cash or a debit card
• Delay purchases—wait 48 hours before buying non-essentials
• Focus on breaking the cycle of borrowing.

11. Earn extra income

If cutting expenses isn’t enough, increasing your income can speed up your debt repayment.
Ideas to generate extra cash:

• Sell unused items online
• Offer freelance services or tutoring
• Take on a side gig (delivery, rideshare, babysitting)
• Rent out a room or storage space
• Monetize hobbies (e.g., baking, crafting, photography)

Use any extra earnings to attack your highest-interest debt first. Read also: How to make money online: Top ideas, considerations and tips

12. Automate your debt payments

Set up automatic transfers to ensure payments are made on time. Late fees and missed payments can derail your plan and hurt your credit score.

Make debt payments a non-negotiable part of your monthly budget—just like rent or groceries.

13. Develop a long-term savings mindset

Once your debt is under control, shift focus toward saving and building financial resilience.

• Start with an emergency fund covering 3–6 months of living expenses
• Open a high-interest savings account and set automated deposits
• Use round-up savings tools that deposit spare change into savings
• Set financial goals (e.g., home deposit, travel fund, retirement)

Savings will help prevent you from falling back into debt.

14. Understand your credit score

Your credit score affects your ability to borrow and the interest rates you’ll pay.

• Check your score for free using trusted websites
• Dispute any errors on your report
• Improve your score by making payments on time and reducing your credit utilization

A healthy credit report can open the door to better financial opportunities in the future. Read also: Understand how your credit score and report work.

15. Know when to get help

Sometimes, debt becomes unmanageable despite your best efforts. That’s when professional support can make all the difference.

Contact a financial counsellor if:

• You’re behind on multiple payments
• Debt is affecting your mental health
• You’re considering bankruptcy or a debt agreement

These professionals can help you:

• Explore all your options
• Create a personalized repayment plan
• Advocate on your behalf with creditors

In Australia, services like the National Debt Helpline offer free, confidential assistance.

In summary: your path to a debt-free life

Getting out of debt doesn’t happen overnight, but with commitment, planning, and the right support, it’s absolutely achievable.

Key takeaways:

• Know what you owe
• Create a clear budget
• Choose a repayment method that suits you
• Cut costs, increase income, and stay consistent
• Automate where possible and avoid new debt
• Ask for help when needed

The most important thing is to take the first step. Every payment you make, no matter how small, brings you closer to financial freedom.