How To Become Debt-Free: 6 Steps to Take Control of Your Debt

Between food prices, gas prices, housing prices, and more, the cost of living is definitely taking a toll on many of us. 

In fact, research from the Federal Reserve shows that credit card debt alone went up 8.5% from 2023 to 2024! Ouch.

If you’re struggling with debt — whether it’s credit card debt, student loans, or other debts — there are ways to become debt-free. The process requires facing your financial challenges head-on and employing a few budget-building strategies. 

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Go Through Your Expenses 

Many of us wonder how we can have nothing to show for our income month after month. But the reality is most people don’t know what they’re spending money on. 

If you're not currently budgeting, the first step to tackling your debt is to see how much you're actually spending. You might think you're only spending $100 on takeout a month when you're really spending three times that amount.

Look through your expenses for the past few months. Calculate the average amount you’re spending compared to how much you’re taking home.

Then, see where you can cut back. Make a list of what you truly enjoy and value the most. Then, work on spending less on anything that doesn’t make the cut.

Pick Your Strategy

Two popular strategies for paying off debt are the debt avalanche and snowball methods.

The avalanche method means paying extra on the debt with the highest interest rate. Then, once that debt is paid off, you’ll funnel that money toward the debt with the next highest interest rate. This method will save you the most in interest.

The snowball method involves paying off the debt with the lowest balance first, no matter what the interest rate is. Once that debt is paid off, you’ll start focusing on the debt with the next lowest balance. 

While the snowball may not save you more on interest, it can help reduce your total number of loans and credit cards. Some borrowers find this method more motivating because it feels like they’re paying off debt faster.

Ask to Lower Your Interest Rates

If you have debt, you’re probably spending hundreds — or even thousands! — of dollars on interest every year. The best way to pay less interest? Get a lower interest rate.

Easier said than done, right? Nope! Some creditors may lower your interest rate if you just call and ask. 

If you have credit card debt…

List out your current card issuers and call their customer service number.

Whether they do or don’t give you a lower interest rate, set a reminder in your calendar to call and ask again in a few months.

If you have medical debt…

You may be eligible for a lower monthly payment plan on your medical debt. Many hospitals offer 0% interest, with terms sometimes as long as 36 or 48 months.

Depending on your income, you may even be eligible for financial assistance programs that will reduce or eliminate your debt.

To receive financial assistance, you may have to fill out a special form and provide copies of your pay stub or tax return. It can take a few weeks to hear back, so don’t be afraid to call back and check on the status of your application. 

If you have student loans…

For private student loans, see about refinancing them at a lower rate. 

You can use an online marketplace like Credible student loans to compare different rates and terms. Some direct lenders, like SoFi student loan refinancing, let you immediately check what rate you qualify for with no impact on your credit score.

For federal student loans, you may be eligible for income-driven repayment plans that can reduce your monthly payment. Sometimes your payment can even be as low as $0 per month if you’re unemployed or have a high loan-to-income ratio.

Negotiate With Other Providers 

Depending on your income, you might qualify for special programs from utility companies and other bill issuers. 

For example, some internet companies offer a $10 plan for low-income folks. Utility companies may also have special incentives for those close to the poverty line.

It doesn’t hurt to call and ask if you’re eligible. You might be surprised at what you qualify for, especially if you have a large family.

You should also call and try to get lower rates from other providers, like your car insurance or home insurance companies.

If you have any memberships, you can threaten to cancel. Sometimes they’ll offer you a lower rate if you say you want to cut your plan. 

Look Into Debt Consolidation 

You can combine multiple loans into one single loan or credit card through a process called debt consolidation. 

For example, let’s say you have two credit cards with high balances. You can merge them into a single personal loan, a new credit card with a lower interest rate, or a home equity loan. 

The best reason to consolidate your debts is to get a lower overall interest rate. You might not owe less each month (depending on the new terms), but you’ll pay less interest over the life of the loan. 

When comparing loan consolidation offers, make sure to compare the total interest so you don’t choose a loan that costs you more over the long haul.

You can also consolidate with a credit card that offers an introductory 0% APR for several months. If you can pay off some or most of the balance before the 0% APR offer expires, you may be able to save hundreds of dollars or even more on interest. 

If your monthly payment ends up lower than it was before, keep paying the original amount if you can. This will also help you pay down your debts faster.

READ MORE: How To Consolidate Credit Card Debt

Increase Your Income

No matter how effectively you cut expenses, at some point, you'll reach a limit. That's why it's also crucial to work on increasing your income. 

If you haven't gotten a substantial raise in some time, create a proposal to convince your boss you deserve one. Demonstrate how you’ve helped the company save money, make money, or ideally, both. 

Then, see what the standard salary is for people in your industry. That way, you’ll be well-informed when you ask for a raise.

Some people start a side hustle just for debt payments. However, not all side hustles are created equal and some carry more risk than others. 

For example, driving for a rideshare or delivering food can put a lot of wear and tear on your car. And filling out surveys or playing games online usually only yields a few bucks — not enough to make a big dent in your debt.

The best side hustle is usually the one that uses your unique skills or talents. For example, if you're a talented baker, you can start selling custom cakes and cookies to people in your neighborhood.

You may want to consider becoming a freelancer and marketing your services on sites like Upwork and Fiverr. Once you build a steady clientele, you can start increasing your rates. 

You may wind up building a side business that ultimately becomes your full-time career!

FAQs

Is the debt avalanche or snowball method better? 

Picking between the avalanche or snowball method depends largely on your personality type, not the kind of debt you have. 

For example, if you lose motivation quickly, the snowball method may be more effective. But if you’re more logical, the avalanche method may be a better pick.

Some people also switch between the two strategies. For example, if you have a couple of small loans (less than $1,000 each), you may want to pay those down quickly just to get them out of the way. Then, you could switch over to the avalanche method.

How much debt is too much debt?

This question can only be answered with a vague, “It depends.” 

If you earn $30,000 a year and have kids, $5,000 in credit card debt can feel insurmountable. But having $5,000 in debt on a $300,000 salary can feel like nothing.

In general, if your debt is affecting your ability to save for the future, pay for everyday expenses, and handle emergencies, then you have too much debt.

TL;DR: Ways to Become Debt-Free

The first step in taking control of your debt is learning where your money goes. Look at your spending and set a budget for yourself. Cut out unnecessary expenses.

Then, see if you can negotiate with your creditors to lower the interest rates on your debt, or consolidate your debts into a more affordable loan.

It’ll take some time, patience, and effort, but you can become debt-free if you stick to it!

For more money management tips, check out these episodes of the Erika Taught Me podcast:

• How To Budget for Beginners
• Money & Investing Pitfalls to Avoid
• Atomic Habits You’ll Actually Stick To

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