60-Second Guide to Getting out of Debt

Imagine being free of debt -- no more sleepless nights over mounting credit card balances, no more ball-and-chain of debt feeding your anxieties, and no chance of threats from dreaded collection agencies. You can do it! Here's the scoop -- in one minute flat.

0:60 Resolve to spend less than you make
Make it a habit as fundamental as stopping for red lights. Realize once and for all that if you can't pay for it today -- you can't afford it.

0:55 Distinguish between Bad Debt and OK Debt
OK Debt has an interest rate well under 10% -- preferably with some tax advantages to boot. In the best case, what you bought with borrowed funds will appreciate in value. Home mortgages and student loans are examples of OK Debt. Automobile loans are on the border: They often satisfy the low-rate piece, but automobiles almost never appreciate in value. Bad Debt is everything else -- from your titanium credit card to the 35% loan from Larry's Kwik Kash.

0:50 Pick a winner
Out of all your cards, pick the one or two major credit cards that feature the lowest annual interest rate. Resolve to use those cards for emergencies only. As for all the other plastic pals in your wallet, remove temptation by taking them out of your wallet. Throw them behind a major appliance, freeze them in a bowl of water, or decoupage them to a shoebox. Do whatever it takes not to use them.  

0:41 Gather the latest bills from all Bad Debt accounts
Line these up on the kitchen table. Find the minimum monthly payment for each account and then add these up to get an overall monthly minimum. Pledge to pay this overall minimum PLUS a hefty additional chunk every month -- enough to make a solid dent in the outstanding balance of at least one account.
If you can't pull this off, you'll have to make a drastic move to increase your income or lower your expenses. It's harsh, we know, but it's also an inescapable fact.

0:34 Pick the highest interest rate account and: Attack!
Next, order the latest bills according to annual interest rate charged. Apply the "hefty additional chunk" (beyond the minimum) to the highest rate account(s). Repeat this process monthly until the last Bad Debt account is paid in full.

0:26 Ask for a lower interest rate
Grab a bill from any account charging you more than 14% interest. Dial the toll-free number on the bill and ask to have your rate reduced -- say, to 11%. Tell them that you'd really like to stay with them out of customer loyalty (embellish according to your acting skills), but that you have received offers for much-lower-rate cards. Expect to be made very uncomfortable, but stand firm and remember that, to them, you are both a customer and a profit center. You also stand to save a bundle. The more calls you make, the more persuasive you'll become.

0:18 Be prudent
Be aggressive in paying down Bad Debt, but don't get so ambitious that you risk missing minimum payments on your mortgage, automobile, or any other secured credit account. (Secured means that if you miss enough payments, the bank can show up and take away your stuff.)

0:12 Commiserate with others
On our Consumer Credit / Credit Cards discussion board, you'll find plenty of emotional support and great ideas. Help others celebrate their debt-free "happy dance."

0:05 Dance, Fool!
You're done when the Bad Debt is 100% exorcised and you can make remaining OK Debt payments with ease, leaving plenty of budget room for savings.

Got another minute?
Our Credit Center offers many more workable ways to help you get out of debt.

Read/Post Comments (34) | Recommend This Article (380)

Comments from our Foolish Readers

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  • Report this Comment On October 30, 2008, at 5:01 PM, ravermagik wrote:

    If you have ok debt then you are not debt free. Debt is debt no bad no good. Just good or bad company's that offer credit.. If you want to get out of debt make sure you cancel all of your credit cards first. (you don't need credit when your debt free) then you should focus your effort on the smallest bill. Pay it off and then work on the next one higher. until you have no payments with anyone. Then you are living below your means the way you should be and truely debt free. No one can take your car or house when you own it.

  • Report this Comment On November 01, 2008, at 6:55 AM, Americanlady wrote:

    I agree with the article, paying off the highest interest rate card makes a lot of sense. I don't need the instant gratification, as I can manage a $150 balance with say 18 percent interest. What I personally did was pay off the highest balance with the highest interest rate so the large balances got worked on first. This worked for me and my husband. I think each family is different and they should look at the balances and the rates and make choices of which to work on first but going with the highest interest rate would be first on my list with the highest balance.

    Either way best regards to all who are working on this and getting their families out of debt and back on track.

  • Report this Comment On December 26, 2008, at 12:31 PM, ravermagik wrote:

    This is how I started. I looked at what I was spending money on and where I can cut back and control . I got rid of the cable,cell phones, and take out. I literally saved 480.00 a month by not having these. (cable 180,phones(2) 100, and takout 200) I saved for 2 months 960 and put it in my safe. Then I looked at all my other bills past due and present. I started paying the smallest first. (< 100) I had like 8 of these between my wife and I. That made me feel great. Then I looked at the ones that were < 500. and figured on paycheck can knock them out. So everytime I got paid i would pay the bills that we had to keep on rent electric gas car payment ect. and took the rest and just paid one bill. When we got thru with them. the only thing I had left was my car loan 15k So every dollar I made I sent to them. It took me 5 months to pay off my car. Because I paid the smaller ones first. Now I am saving for a house and going to buy it cash no loan no debt. With this recession I see people struggling. Because of the debt not because of their job. It's the debt that kills most of us.

  • Report this Comment On January 21, 2009, at 9:46 PM, Summer115 wrote:

    We almost maxed out our 401k and planned on paying off debt with the tax savings and income the next year, then we had all kinds of disasters from 2 hospital stays and operations and hail storm damage and copays. Then my husband got layed off the year we were going to pay the debts off. We spent every extra penny paying on debt on one credit card and a car. We had charged everything to the card then took a zero interest rate.

    Then the credit card company decided to raise our interest to the maximum interest rate of 31% that is allowed by our state. We did not hesitate, we took our money out of our IRA and paid off every penny we owed.

    You would not believe how much free money we have now, since we aren't making payments. We still have insurances, utilities, groceries and gas, but we have enough money that we don't have to use the credit card. We did keep one card that we pay off monthly for times when we need one to call an order in, etc.

    No more than anyone is getting for interest, everyone should pay off the credit car, if they can.

  • Report this Comment On February 27, 2009, at 12:24 PM, RebeccaJYR wrote:

    Every time I read the "just call your credit card company and tell them you want a lower rate" line of b.s., I want to scream. Everyone makes it sound like it's a sure thing, when, in fact, it's NOT. We have good credit and always pay our bills on time, yet we've threatened to close and have indeed closed accounts because the cc companies will not lower beyond 1/2 to 1/4 of a percent when we call.

  • Report this Comment On March 05, 2009, at 2:35 PM, OuttaDebtFool wrote:

    I agree with truthisntstupid. Be a cash payin' customer all the way. For those that want to pay down the debt, set up a little Excel spreadsheet of your debt and and track your debt reduction plan. Each pay day, update the spreadsheet with your current balances and chart a graph. Set your spending based on needs only with cash, and devise an agressive debt pay-down plan based on this "60-Second" article. Writing it down and updating it constantly will encourage you to stay on track for the big prize of living without debt. It's well worth it.

  • Report this Comment On April 02, 2009, at 7:42 PM, DebtGoal wrote:

    The advice on quickly getting going on debt issues is so critical because one of the top sources of inaction on personal finance problems is staring at the complexity of the issue, considering the time that needs to be invested, and then surrendering or kicking the problem down the road for resolution ...... never.

    But don't you think that it's even better to get at the core of the debt-driven behavior by first setting up a quick budget and working from there to identify how to structure debt reduction into one's monthly expenditures? What are your thoughts on "The Five-Minute Rough, Quick Budget."?


  • Report this Comment On May 01, 2009, at 11:24 PM, sandra1206 wrote:

    BEWARE: These "get out of debt" companies can be a total scam!! They are out to get money just like anyone else. Trust me I know! I was in debt up to my eye balls.

    I talked to some of these debt companies and thank god I am smart enough to notice a scam or stupid solution when I hear it. Did not go that route!! What I did with my- 4 credit cards- which totalled: 25 thousand--- yes $25,000 in debt, I refinanced our home. This was the answer for us. We got a 4 3/4 interest rate, paid off all the debt, plus our one car payment, and walked away with our house payment (the only major payment we have)now being $700 less than before! Yes, we were paid down pretty good before on our home- but that's okay. We are now free our car payment, credit card debt and can sleep like babies cuz we have nothing to worry about. The only catch is, you have to have at least a 700+ credit score to get a good interest rate with a lender. Thank God I kept current on my payments. That makes a big difference. If you can swing it, refinace and get yourself out of all the debt. I am in such relief to be finally debt free (except for our home mortgage)!!! I only hope others will do the same and live, finally, in peace.

  • Report this Comment On May 01, 2009, at 11:28 PM, sandra1206 wrote:

    PS: I posted previously, PLEASE BEWARE of some of the people posting above, trying to lure you into a solution. They want your business because they of course get a commision off of you cuz it's their job!! RESEARCH before you commit to a debt consolidator!!

    Do your homework. I hate to see anyone get in even deeper than they already are.

    Good luck!!!!

  • Report this Comment On May 15, 2009, at 3:59 PM, danielashercohen wrote:

    You can also get loan calculators for your iPhone or ipod touch.

    That way you can see what your loan will really cost you, not just what the monthly payment is before you sign the paperwork (and see what a little increase in the repayment can do to the loan).

    There are a lot of them on the itunes appstore.

    Credit Calc will let you enter the number of months you would like to repay in and tell you the new repayment required which I think is a useful feature

  • Report this Comment On August 10, 2009, at 3:44 PM, abientot2 wrote:

    I really can't believe how many links to "for profit" websites were just posted. The Fool is dedicated to self-help. I can't get out of debt by adding to my debt load. You leaches get out of here!

  • Report this Comment On August 10, 2009, at 8:31 PM, dcpol wrote:

    In terms of reducing debt, I recommend paying the debt with the least amount of payments left first and then rolling over that payment to the next debt and then rolling over that payment too until all the debts are payed. it may feel like it's a slow go at first but once you can rollover the minimums, it will snowball like crazy. I've even used it to help pay my mortgage down with a big lump sum once a year once I had payed off my other debts. I believe that if you compare it to paying off the highest interest rates first, you usually come out ahead with the rollover pay plan...

  • Report this Comment On August 15, 2009, at 2:42 PM, lslomba wrote:

    Could someone help me out with my question regaurding credit card debt reduction?

    I am trying the snow ball plan,

    I have 2 cards with high balances, One with 12,000 @ a rate of 5.99 but will be increasing in Oct to who knows what! The other has a balance of 7,000 @ a rate of 13.99. I have several other cards with lower balances and good rates that will be payed the minimum. Of the two HIGH BALANCE cards, who should the minimum go to and who should get the large chunk to make a dent as recomended above?

    Thanks for any help you can give!!!

  • Report this Comment On August 19, 2009, at 10:56 AM, lslomba wrote:

    I am using the snowball effect with paying off about 6 credit cards.

    I have two cards that i am concerned about and not sure what to do.

    Card # 1: It has a balance of $12,000 @ a rate of 5.99% but the rate will be increasing in october to an unknown %rate.

    Card # 2: It has a balance of $7,000 @ a rate of 13.99%.

    Witch card should i pay off first, the one with the higher balance or the one with the highr % rate?

    Thanks you all for any help that you can give.

  • Report this Comment On September 18, 2009, at 2:59 PM, GOLDIERUCKER wrote:

    All these ideas seem great except I don't see where it will help my current situation. My husband and I filed BR 7or 8 yrs ago and we have worked very hard to get our credit scores back up. Mine is around a 7 now. We put our house up for sale a little over a year ago and had no luck, no one could seem to get financing because of their credit. We used credit cards to make it while in hopes of the house selling and paying everything off. Gas went to $5 per gallon, costing over $400. a month just for us to go to work. We charged gas, food and paid utility bills and now we have a total debt not counting house and cars, of $13k. The interest on all the cards went up, some as high as 30%. We can't even make the minimum payments, we are at least 5-600 short a month. I don't want to ruin our credit or file BR again. The companies won't lower the interest and I feel like I'm against the wall. What do I do to pay them off and not loose the credit we have worked so hard for?

  • Report this Comment On September 22, 2009, at 8:38 PM, jelstad wrote:


    You mentioned several small debts. I would simply pay these off first. Then move to the 2 large debts. You do NOT need to pay off the highest percentage first. Its better to pay off the smallest debts first! Getting out of debt is a constant battle. Stay on top of it!!

    Pay off the small, move to 7,000 then 12,000. Always make minimum payments on the ones not paying off.

  • Report this Comment On December 03, 2009, at 7:09 PM, jimbugtm wrote:

    A couple of things that are working for me:

    First, wherever possible, convert revolving debt (credit cards, credit lines) to non-relvolving debt (an unsecured loan at a fixed rate). I did this with two credit cards, and while I still have about two years to pay off the loan, once that happens, that debt is gone for good.

    Be patient. As the article says, don't be in such a hurry that you overpay on some debts (such as credit cards) to the detriment of others (such as your mortgage). Most of us didn't acquire our debts overnight (yes, there are exceptions, and emergencies), and so our debt won't go away overnight. When I'm feeling anxious about what I have left in front of me, I log on to my loan's website, and look at the progress I've made over the past year.

  • Report this Comment On December 03, 2009, at 7:10 PM, jimbugtm wrote:

    A couple of things that are working for me:

    First, wherever possible, convert revolving debt (credit cards, credit lines) to non-relvolving debt (an unsecured loan at a fixed rate). I did this with two credit cards, and while I still have about two years to pay off the loan, once that happens, that debt is gone for good.

    Second, be patient. As the article says, don't be in such a hurry that you overpay on some debts (such as credit cards) to the detriment of others (such as your mortgage). Most of us didn't acquire our debts overnight (yes, there are exceptions, and emergencies), and so our debt won't go away overnight. When I'm feeling anxious about what I have left in front of me, I log on to my loan's website, and look at the progress I've made over the past year.

  • Report this Comment On January 09, 2010, at 3:07 PM, bbdarn505 wrote:

    I had to learn through the collection nightmare. A slimy ilk of debt buyers were hounding me when i lost my job. I was facing foreclosure, so credit card debt had to be put on hold to keep my home. I had four balances go to charge off. AlI of these collection entities violated every law and used deception without

    batting an eye. Through the experience, I found a growing fringe industry of unscrupulous bottom feeders cashing in on the bad debt buying market. My friends, this is fresh motivation to stay out of credit card debt! There are how to books out there touting bad debt buying for huge profits. There are hungry sharks that look at you as a file in a stack of bank write offs. Usury has no bounds. Beware!

  • Report this Comment On February 04, 2010, at 7:02 PM, Bobwillwin wrote:

    I had a successful business, a house and a nice, but not a high end car. I never participated in the economic house of cards. However, my customers did. They bankrupted, but not before moving assets away from creditors, including me. I sued and won but since they hid away assets I was left with useless pieces of paper, left hanging with millions in uncollectable receivables. One of these companies did it with help form their bank. These companies are still in business, but I am unable to pay up front to chase them down. I was unable to pay for any business credit cards, rent or anything else. I shut down, abandoned the house, now I rent a room and work for $10/hour. My address is a P.O. box. That's what you get for doing things right. I'm in my 50's, I will never have credit again. The only number any collectors have is my cellphone, but I never answer so they have pretty much given up. They send letters now and then, but their threats are empty. I have no love for the financial system in this country. No one will ever get a thing out of me.

  • Report this Comment On April 25, 2010, at 5:36 PM, workhardnie wrote:

    I like this article, it is ver helpful

  • Report this Comment On December 07, 2010, at 4:34 AM, jmcdonalds wrote:

    Debt settlement helps you in reducing your credit card debt & other unsecured debts. yourdebtfreeadvisor provides credit card debt settlement,tailor made plans for debt negotiation and debt settlement giving you relief from your debts & taking the burden off your shoulder.

  • Report this Comment On February 20, 2011, at 5:58 PM, Hoodsport wrote:

    We pay off credit cards every month. Our other debts are a 15 year $199000. mortgage on our home just refinanced at 4.25% and a real estate contract on a building lot that was originally $25000. at 7%and is now just under $15000. We purchased the lot for investment purposes.

    We collected a debt of $15000. and discussed paying off our real estate contract and applying the $225. monthly savings to our mortgage. I did the amortization schedules and we decided to pay $15000. on the princi[pal of our mortgage. . Seems to me that we saved about $14000. in interest and cut about a year and a half off the mortgage. If we paid off the real estate contract we would have saved about $4000. of interest.

  • Report this Comment On May 26, 2011, at 12:18 PM, roadoutofdebt wrote:

    Great points! A lot of prudency is needed for not getting in debt, and of course for your way out of debt, as it is often the case!

  • Report this Comment On October 09, 2011, at 10:27 AM, oujouj wrote:

    i have a debt it's about 25k . i can't get aloan what should i do ?

  • Report this Comment On January 07, 2012, at 5:09 PM, wolfman225 wrote:

    I would change one of the steps. As opposed to concentrating on the card with the highest interest rate, focus on the card with the lowest balance first. Pay the minimum on your other plastic and throw all the extra mustard you can get together at the smallest balance.

    As soon as you have cleared that card, put it aside (I like the idea of freezing it in water), take the total you were paying on that card and add it to the minimum payment on the next smallest balance, Repeat these steps until you have cleared all of your cards. This is called "snowballing" your debts.

    Unless you have extremely large balances attacking on the basis of interest rate makes little sense. The impact of a couple of percentage points will be minimal in terms of clearing the overall debt. However, paying off any balance IN FULL gives you positive feedback and concrete evidence that you are making progress.

    Seeing clear, objective proof that you are making progress towards being debt-free is essential to being able to keep to any budget.

  • Report this Comment On January 07, 2012, at 5:13 PM, wolfman225 wrote:

    ^Of course, all of this is dependent on the most essential first step: Stop Using the Cards! LBYM!

    Trying to snowball your debts while continuing to make new purchases on credit is a total waste of time and effort.

  • Report this Comment On February 21, 2012, at 1:51 PM, FairLady47 wrote:

    My credit rating took a nose dive from 830 to 670 after I had to "max out" my three credit cards to remodel a home that my husband and I own free and clear. The house had been in his family since the 1950s but he had not fixed it up. My plan was for us to fix it up quickly and sell it. (It's in the DC area where prices have NOT dropped like in other areas due to the plentiful govt. jobs). My husband does not want to sell the house until the market goes up to where it was in 2005. I don't think home prices will ever get so reasonably high again. He does not understand what a waste it is to pay $500.00 a month in high interest on credit cards. We are both retired and cannot get a home equity loan at the good low rates that others can. I want to sell here, pay off our debts and move to a place where home prices are more reasonable for people with our income. Which one of us has the right idea?

  • Report this Comment On May 22, 2012, at 11:04 PM, perrychop wrote:

    "The rich rules over the poor, and the borrower is the slave of the lender."

    Proverbs 22:7

  • Report this Comment On December 20, 2012, at 6:28 AM, AriPage wrote:

    Nice tips for paying of the debit which is taken through credit card. Thanks for such a wonderful tips, they are very helpful & effective.

  • Report this Comment On August 11, 2013, at 1:36 PM, shummingbird wrote:

    While agree it makes perfectly good sense to pay off your higher interest cards first, I truly feel you have to do what works best for you. I borrowed from my 401 account twice in an attempt to pay off my credit cards which was not only a horrible mistake but I continued to use my cards and go nowhere really fast! I finally repaid my 401 loan debt and made myself commit to paying off my credit cards. I made a contract with myself to not use the cards except for an extreme case. I then paid off the card I owed the least on while paying the minimum on my other cards. Once I paid off one card I used that money and added it to the amount I paid on the next card. I did not get involved with which one had the highest interest rate. i got my highs off of seeing my credit card debt diminish. As I paid off cards I cut them up which gave me more gratification. I was also lucky that I was able to work a lot of overtime and all the extra money I made went toward the debt. I am not sure exactly how long it took me to pay off my $20,000.00 in credit card. Now I am debt free, have good amount of savings and a a great 401 account and plan to retire at age 62 at the end of the year. I am a much happier person without the burden of credit card debt. No more daily phone calls from creditors and sleepless nights worrying about how I was going to pay my bills. I also called credit card companies in attempts to lower interest rates, etc. I did find this to be as easy as it sounds. I was able to get a couple of companies to lower my interest rate but was not very successful with most. My heart goes out to those in credit card debt because I know how easy it is to get in "over your head" but if you set your mind to it and discipline yourself, you too may be set free!

  • Report this Comment On August 11, 2013, at 1:41 PM, shummingbird wrote:

    That should have read I also called credit card company in attempts to lower interest rates, etc. I I did find this to NOT be as easy as it sounds.

  • Report this Comment On March 08, 2014, at 2:15 AM, ClaraCho wrote:

    If you really have that much debt (which you shouldn't ever get into in the first place), it's time to take drastic measures. Cut your living costs to almost nothing:

    1) Buy food in bulk.. dry food.. frozen food.. whatever is cheap. It might not taste good, but it's cheap and is a temporary solution until you pay off your debt.

    2) Cut all cable TV, internet, gym memberships, whatever else is a monthly expense that you don't need.

    3) Cut transit costs. Drive a cheap car (or better yet, none at all). Use 4AutoInsuranceQuote for insurance ($25/month). Use GasBuddy for gas (save $100/month). If you have access to public transportation, sell your car and use it.

    4) Don't get haircuts, manicures, your nails done, or whatever luxuries you indulge in until your debt is paid off.

    5) Try to spend $0 each day. If you don't need it, don't buy it.

    Desperate times call for desperate measures.

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