How to Get Out of Debt and Stay Out for Good

Debt can make life much more difficult, but there could be a path out of it.

Being stuck in debt can rob you of your ability to accomplish financial goals. When you owe a lot of money, the hard-earned funds that should be going toward saving for retirement, financial emergencies, and big purchases will instead go to your creditors.

Unfortunately, many people find themselves in debt -- and if you're one of them, it could be really difficult to dig out of the hole you're in.

The good news is, there are solutions to help you become debt free and hopefully stay that way. In fact, if you follow a few simple steps, you might be able to say goodbye to interest charges for good and keep more money in your pocket.

1. Make a debt payoff plan

Tackling your current debt is the first step to getting out of debt for good. To do that, create a debt payoff plan to help you get organized and stay on track. If that sounds challenging, try a debt payoff app. These apps can create step-by-step plans and automate your payments for you.

When creating your debt payoff plan, decide which debts to include in your payoff plan. Then, make a list and figure out which ones you'll focus on paying off first.

For most people, it doesn't make sense to pay off your mortgage early because the interest rate on home loans is so low, and the amount of money necessary to repay a mortgage ahead of schedule is so high.

While you likely don't want to include your mortgage in your payoff plan, high-interest debt such as credit cards and payday loans should definitely be on your list. And if you don't like paying interest at all, personal loans and car loans potentially should be part of your plan too -- especially if they have a pretty high rate.

Once you know which debts you're paying off, you'll want to come up with a budgeting method that works best for you. This method will help you decide what order to pay off your debt. You should always make minimum payments for everything, but should typically send your extra payments to one particular loan at a time. This could be the one with the highest rate if you want to maximize interest savings, or the one with the lowest balance if you need the psychological boost that comes with a quick win once it's paid off.

Whatever budgeting method you decide on, commit to paying more than the minimum due every month -- and ideally a lot more. If you can make some extra money to throw toward the debt or sell unwanted items to pay it off faster, consider doing that.

2. Live on a budget

Living on a budget is crucial to becoming free of debt, both during the debt payoff process and after.

When you make your budget, you can prioritize extra payments to your debt by cutting unnecessary spending. And after your debt is paid down, you can set a budget that ensures you live within your means and begin to build financial security.

There are different kinds of budgets to choose from, but for those paying off debt it's often best to use a more detailed budget approach, such as a 50/30/20 budget. This means you allocate 50% of your income to necessities, 30% to discretionary spending, and 20% to saving.

When you make a budget, start by looking at your current expenditures to see where you can make cuts that are realistic and sustainable. You can assign each dollar a job, including saving, spending, and debt payoff so your budget accounts for all of your income.

3. Save up an emergency fund

Budgets can't always account for emergencies. Unfortunately, unexpected expenses when things go wrong are a big reason why many people end up in debt.

You can avoid this fate by saving up an emergency fund, which can help cover surprise bills. Emergency funds should ideally contain enough money in an accessible savings account to cover at least three months of living expenses and possibly more.

If you're still working on debt payoff, though, it's best to start small. Build up your emergency fund as much as you can while you put most of your extra money to your debt. Then, work on making it bigger later.

4. Track your spending

Your emergency fund can keep you from borrowing if problems happen, and your budget can help you avoid going into debt to cover routine expenses. But this only works if you make sure you're sticking to it.

The best way to do that is to track spending. You should be keeping tabs on where your money is going both while you're repaying debt and after you are debt free. By monitoring your spending, you can ensure you're living within your means. And if you need help, try a budgeting app. The best budgeting apps can track your spending for you and help you stay on budget.

While it may seem like a lot of effort to make a budget and keep track of every dollar, it will be well worth taking these steps once you've made serious progress on debt payoff, built up an emergency fund, and can hopefully spend the rest of your life without having to waste money on paying interest on costly debts.

For more help getting out from under your debt, check out our guide on how to pay off debt.