How To Get Out of Debt: Best Tips

Have you ever felt like you're drowning in bills, struggling to catch a breath? You're not the only one. Being in debt can be overwhelming, even depressing. But the good news is - you don't have to stay stuck forever. There is a way out. And whether you've got student loans hanging over your head, credit card debt piling up, or just a wide variety of everything, there are practical ways to turn things around. We've gathered some of the best tips to help you get out of debt.

Keep reading, and you'll get a solid strategy for paying off your debt. In addition, we'll share some useful advice on how to feel more in control of your finances.

How to pay off debt

1. Know exactly how much you owe

First, you have to get the big picture to understand how serious your situation is. It's easy to lose track of debt, especially when you have multiple sources - credit cards, personal credits, student loans, or even installment plans. So, make yourself a cup of tea, grab a pen, a notepad, or your favourite financial app, and list every single debt you owe.

And when that's done, dig deeper and sort:

• Interest rates: Higher rates mean more expensive debt.

• Minimum payments: This keeps you afloat, but paying only the minimum drags the process out.

• Payment due dates: Missing these means late fees, which only add to your debt burden.

Now that you've got everything in front of you, you'll have a clearer idea of how much you must pay each month to stay on top of things. It might feel overwhelming in the beginning, but don't be discouraged - you're about to take action.

2. Break the Habit of Spending and Tighten Your Budget

The hard truth is—you’re not likely to get out of debt if you don’t change your spending habits. Yes, you might want to say you’re not a careless spender, and that’s probably true. But sometimes, making just a few small changes can add up to significant extra funds to put towards paying off debt.

If you haven’t made one yet, create a budget. It’ll help you control where your money goes, rather than wondering where it disappeared.

Here are some key areas to reduce spending

• Subscriptions: Do you really need and use all those streaming services and productivity tools?

• Dining out: It’s convenient, but cooking at home saves money—and it’s often healthier, too.

• Impulse buys: Online shopping sales are tempting, but think twice—do you really need that item you’ve had your eye on?

This might not sound fun, but it’s a temporary sacrifice for long-term gain. Every dollar (or penny) you save brings you closer to paying off your debt.

3. Find a repayment strategy

You can consider various strategies to help pay off your debt. Since there’s no one-size-fits-all solution, we’ve outlined the most popular ones below so you can choose what works best for you:

Income-Driven Approach – If you're able to increase your income.

This method focuses on bringing in extra money while maintaining regular debt payments. Whether you take on a side hustle, freelance projects, or ask for a raise, the goal is to direct all the additional income towards paying off your debt faster. Every extra dollar you earn goes directly to reducing your debt, which accelerates your repayment process. The great thing about this approach is that you don't necessarily have to change your spending habits drastically—just boost your income and use it wisely!

Debt Snowball – If you want quick results.

This method is about gaining momentum by first paying off your smallest debts. Begin by arranging your debts in order from the smallest to the largest. Switch to the minimum payment on all your debts except the smallest one, which you focus on clearing as quickly as possible. Once the smallest debt is paid off, move on to the next one on the list. The quick wins give you a psychological boost. It helps you stay motivated to pay off each next debt. It's a great method if you feel discouraged by the size of your overall debt and need some fast progress to keep you going.

Debt Avalanche – If you want to save money on interest.

The debt avalanche method prioritises paying off debts with the highest interest rates first. This approach will save you the most money in the long run because you're tackling the most expensive debt first. List all your debts in order of interest rate, from highest to lowest. Make minimum payments on all your debts, and then throw as much as you can at the debt with the highest interest rate. Once it's paid off, move to the next highest-interest debt. While this method can take longer to see results compared to the snowball method, it's the most financially efficient for reducing the overall cost of your debt.

Debt Consolidation – If you need to simplify your payments.

Debt consolidation is about merging multiple debts into one, usually at a lower interest rate. This can make managing debt easier because you'll have a single monthly payment to focus on. A common approach is to take out a personal loan or use a balance transfer credit card to pay off high-interest debts. With a lower interest rate, you'll save on interest payments and pay off your debt faster. However, ensuring the consolidation loan or credit card comes with better terms than your current debts is crucial—otherwise, it may not be worth it.

Debt Snowflake – If you want to chip away at debt with extra cash.

The debt snowflake method is about making small, frequent payments towards your debt whenever you have a bit of extra cash.

Try to sell things you no longer use, cut back on groceries, or get a tax refund. While these smaller payments may not appear significant from the beginning, they can ultimately significantly reduce your debt. It's an excellent method for feeling like you're consistently moving forward, even if it's in small increments. Every bit matters!

Each method has its benefits depending on what motivates you most, your financial situation and personality. Choose one, or combine the ones you think suit you the most.

4. Boost Your Score: Check Your Credit Report for Hidden Mistakes

Your credit score can play a big role in how easy or hard it is to get out of debt. If your score isn't where you want it to be, now's a good time to review it. In Australia, you can check your credit report for free every three months.

Look for mistakes like:

• Incorrect account balances

• Missed payments you actually made

• Accounts you don't recognise

If you find any errors, get them fixed. This could boost your credit score and might help you get better terms on future loans or debt consolidation.

5. Simplify your payments, consider debt consolidation

Debt consolidation could be a game-changer, especially if you're juggling multiple debts. It rolls all your debts into one, usually with a lower interest rate, making it easier to manage.

There are two main ways to consolidate debt:

• Debt consolidation loan: This is a personal loan used to pay off all your debts at once. Instead of managing several payments, debt consolidation loan allows you to manage only one instead. With Credit24, you can apply for a personal loan with a flexible repayment plan and no hidden fees.

• Balance transfer credit card: Transfer your high-interest credit card debt to a new card with a 0% introductory interest rate. Just be sure you can pay it off before the interest period begins.

Consolidation simplifies your finances, and with a lower interest rate, you'll pay off your debt faster.

6. If possible, pay more for quicker results

Whenever possible, aim to pay more than the minimum on your debts. Here’s why:

• Paying more than the minimum reduces the time it will take to pay off your debt.

• Increasing the frequency or amount of payments helps to speed up the repayment process and reduces the total interest you’ll pay over time.

If you pay more than the minimum, your debt will shrink faster, and you’ll end up paying less in interest overall.

7. Consider credit counselling for a debt management plan

Credit counselling might be a good option if you feel lost and don't know where to start. A credit counsellor can help you make a plan to manage your debt, creating a debt management plan - DMP. This involves negotiating with creditors for lower interest rates and creating a realistic repayment schedule.

Once the creditors agree to cooperate, you'll only need to make a single monthly payment to the credit counselling agency. They will then pay each creditor on your behalf. This makes managing your debt more straightforward and prevents missed payments.

Avoid taking on new credit: It's not a good idea to open new lines of credit or take out loans while you're on a DMP. The plan is designed to help you pay off debt, not add more to it.

In Australia, you can find free or low-cost credit counselling services to help you. Remember to watch out for scams. Trustworthy credit counsellors usually won't ask for any upfront fees.

8. Prioritise the debt you’ve fallen behind on

It's crucial to prioritise debts you've fallen behind on, getting them current as soon as possible. When debts go into collections, they add a lot of stress and can significantly damage your credit score. By bringing collection accounts current, you can reduce the negative impact on your credit over time.

Paying off debts that are in collections not only stops those frustrating calls from collectors but also helps you regain control of your finances. Once you bring these accounts up to date, you'll start to notice improvements in your credit score and have one less thing to worry about.

9. Create small, achievable goals

One of the most advised ways to stay motivated is to set small, realistic goals. Rather than aiming to pay off $20,000 all at once, break it down into bite-sized pieces.

For example:

• Set a goal to pay off a certain amount - e.g. $500 this month.

• Celebrate each time you reach a milestone—any milestone. It can be when you pay off 5% or 25% of your total debt.

By breaking the process down into smaller, more achievable goals, you'll feel less overwhelmed and more in control and less likely to give up.

10. Negotiate debt settlement program

If you're having a tough time dealing with a large amount of debt, a debt settlement program may be an option. This means negotiating with your creditors to settle for less than what you owe.

Here’s how it can work:

• You may be able to settle for a reduced amount of the total debt, allowing you to pay less than the full balance.

• Creditors might agree to cancel or reduce interest rates or fees, making it easier to pay off your debt.

• You can negotiate on your own or work with a credit counsellor or debt settlement company to help with the process.

Keep in mind that while settling the debt for less may seem like a relief, it can negatively impact your credit score since creditors often report settlements as "paid less than full balance."

Debt settlement is usually best for people facing severe financial difficulty, but it's important to understand the potential consequences, especially to your credit.

11. Seek Help Through a Hardship Program

If it is difficult for you to keep up with your payments, you might qualify for a hardship program. Many creditors offer these programs to help borrowers who are experiencing financial challenges. Here's how it works in Australia:

• Creditors can agree to reduce your monthly payments, freeze or lower interest rates, or extend your repayment period to make your debt more manageable.

• You'll need to communicate your situation directly with your creditors, explaining why you cannot make your regular payments and providing supporting documents if required.

• While a hardship program can provide temporary relief, be aware that it may still impact your credit rating, as some creditors may report it to credit bureaus.

Hardship programs are designed to help you through tough times, but they require open communication with your creditors and should be used responsibly to avoid falling deeper into debt.