How do I manage debt?

Read time: 6 to 7 minutes

Worried about digging yourself out of debt? Follow these effective strategies for pulling yourself out of the hole and taking control of your financial life.

Don't borrow more money

If you already have debt, the last thing you need is to add to it. So if you're looking to get rid of your debt, start with an easy step. Grab your credit cards and stash them in a safe place that takes some effort to get to. Out of sight, out of mind.

Using cash or a debit card may be a bit inconvenient, but you'll know right away what you can afford and what you can't. That can help you save money to use toward your existing debt.

Track your spending

You may be surprised by how much you're spending. Look at your accounts to see where you can free up extra cash to pay down your debt.

Gather information from all your checking accounts and credit card statements to get a sense of the money coming in and going out. Write down which expenses stay the same every month and which expenses can change monthly. Be sure to take note of any impulse purchases, as well.

Creating a budget using the 50/30/20 rule can help. Budget 50% of your money for "needs," 30% for "nice to have" purchases, and 20% for savings and paying down your debt. Or find the ratio that works best for you.

A simple plan like this one can help you better manage your debt over time, and it leaves room for an occasional night out.

Come up with a plan

After you've taken stock of your spending, create a plan to pay down your debts, such as the avalanche method. Start by listing your debts from highest interest rate to lowest interest rate. Then focus on paying off the debt with the highest interest rate first, before moving down the list to debts with lower interest rates.

Paying down the highest interest debt first can save you hundreds of dollars in interest payments, which means more money in your pocket in the long run.

Learn more about the avalanche method

Pay more to save money

It pays to pay more than the minimum when you're reducing debt. Here's an example of a smart way to save money while paying off debt and paying it off sooner.

If you have a $5,000 credit card balance with a 15% interest rate, and each month you pay:

Only the required minimum amount, starting at $200, it will take about 10 years to pay off the balance.
$210, it will take about 2 years less to pay it off.

Remember: as the balance goes down, the minimum payment goes down, too.

Make use of extra funds

If extra money comes your way, you can use it to help get your debt under control. For example, consider putting some or all of your income tax refund toward debt repayment.

Once you're out of the hole—Celebrate! Without debt dragging down your finances, you'll have control of your money and be able to save the amount you were spending on debt.

DID YOU KNOW?

Making even a little more than the minimum monthly payment on your credit card balance can take years off your debt.

Get help

Help may be just a phone call away. Call your bank to:

Ask for a lower rate. You may be able to lower your credit card's interest rate by calling and asking—especially if your payment history is good. The credit card company knows you can transfer your balance to another company's card and may prefer to keep you as a customer.
Work out a payment plan. If you really can't afford the payments on a debt, you can contact your creditor and try to work out an alternate payment plan. Remember: They don't make money if you can't pay.

A credit counselor can help

If you're in serious trouble, talking to an expert may be a good idea. Nonprofits and state-sponsored programs may be free and generally aren't trying to take more of your money. Some for-profit companies also provide legitimate assistance with debt.

But there are also a lot of predators out there. Be sure to do your homework on any debt-counseling firm you're considering.

Carrying around financial debt can feel like a burden, but taking control of your finances will lighten your load.