How to Get Out of Debt in 5 Tried-and-True Steps

Debt is stressful. It makes you feel guilty every time you go shopping, you constantly worry about how you’re going to pay it down, it makes you anxious every time you get an email about your bank account statement...

And we want to leave that kind of energy in 2022. So, today, I’m going to talk about how to get out of debt.

How to Get Out of Debt

Here are five steps to make progress toward creating a debt-free life this year.

1) Upgrade your Debt Identity to a Wealth Identity

I often find that people who have been in debt for a while start to identify with it. They aren’t just experiencing debt temporarily - they start to believe that they are the kind of person who has debt. This belief structure makes it really hard to get out of debt, because as humans we naturally won’t do things that don’t fit with our view of ourselves… and if we do, they don’t last unless we update how we see ourselves.

So, do you have a debt identity? When you imagine yourself in the future - is your debt still there? If so it’s time to update your identity through the repetition of new thoughts, new actions and new emotions.

Take a minute, close your eyes, and Imagine how it will feel to be free of your debt.

• What happens to your energy level?
• How do you feel about yourself?
• What do you feel capable of?

Jot down a few notes and start practicing feeling those ways every day right now.

Now, let’s get into the tactical steps to clearing your debt.

2) Assess your spending and saving habits

Before you start paying off debt, you need to know what is happening with your money each month.

At the end of the month do you have money left over in your bank account? Are you breaking even on the month or are you going further into debt?

If you don’t know, it’s time to start writing down every dollar that comes in to your life and every dollar that you spend. I recommend starting a weekly money ritual so you do this regularly. This practice will give you the clarity that you need to do Step #3:

3) Reduce your existing expenses

If you’re spending more money than you make, then it’s time to really think about where you can save costs.

The first step to doing this is to get creative. You need to think outside of the box. The best way to do that is to put everything on the table, even things you don’t think you can do.

In the brainstorming phase there is no such thing as a bad idea. Go through each of your expenses and brainstorm ways you could reduce that expense.

This includes expenses that you think are fixed, like your rent or mortgage. Would downsizing to a cheaper place help you get out of debt faster? Can you switch insurance providers for a lower rate? Do you have subscriptions that you can pause? Have you tried negotiating your bills or fees?

Brainstorm all the ways you can cut down on your monthly expenses and write them down. Then create deadlines for achieving each of those; for example, you can cancel your Netflix subscription or Amazon Prime membership today. Maybe you find somewhere cheaper to live by the end of the month.

4) Increase your income by $1,000 a month

To accelerate your timeline to being debt-free you need to work with both sides of the cash flow equation: Money coming In - Money Going Out = Cash Flow.

In Step 3, you identified ways you can reduce your existing expenses. Now it is time to see if there are ways you can increase the amount of money coming in to your life.

Do a similar brainstorm exercise and list all of the things that you can think of that you could do to increase your income. Make sure to include things like asking for a raise, switching jobs, starting a side hustle, and getting a part time job.

Next, map out how many hours it would take to increase your income by $1,000 a month with each of those options. The ones that will take the least amount of time and feel the most fun for you are worth pursuing.

You may find that a combination of options is the best path forward for you; for example, you are going to both ask for a raise and start walking dogs on Rover for 10 hours a week.

Ultimately do what fits for your lifestyle and goals. Increasing your income by $1,000 a month is a helpful target, but that isn’t the right number for everyone. Figure out what is workable for you and go do it.

Then you’re going to take all of that additional income and put it towards your debt.

If you have more than one debt you are trying to pay down, you’re going to follow Step 5:

5) Make a debt pay down plan

I recommend using what I call the “intelligent snowball method.” Here’s the gist:

First, list out all of your debts — amount owed and the interest rate – in order from smallest balance to largest. Your spreadsheet may look something like this:

Now, just like the traditional snowball method, which has you pay down your debts from the smallest balance to the largest balance, you’re going to start by paying down your smallest debt first. That means that every month, you pay the minimum amount on all of your debts, but you pay anything else you can spare on your priority debt until you pay down that one completely.

When you do! CELEBRATE! That is awesome! You are building wealth and knocking out that debt identity for good.

With the usual snowball method, you’d pay down the second-smallest debt next…but with the intelligent snowball method, if you have a debt that has a much higher interest rate, you’ll pay that off first.

That way, you’re building your confidence in your ability to pay down debt AND reducing the amount you’ll have to pay in interest, effectively lowering the amount you’ll pay overall, saving you a lot of money, and getting you out of debt and into wealth building mode faster.

After that, you’ve paid those first two debts off, you keep paying down debt in order of the highest interest rate to the lowest.

Bonus Tip: Make paying down your debt fun

Most people relate to their debt like a dead weight that they are struggling against -- and I know that debt can be stressful. It can make you feel guilty, worried and anxious… but we want to leave all of those feelings behind.

Debt sucks — but paying down your debt is awesome. Let yourself feel awesome every single time you put an extra penny towards that debt because those pennies are progress. You are winning every time you chip away at it…and you deserve to FEEL like a winner along the way.

A way that I love to make paying down debt more fun is to use a visual tracker. Draw something or find a template online and start coloring it in every time you make a payment on your priority debt.

It’s fun, motivating, and rewarding to be able to visually see your progress. Keep the tracker on your fridge or somewhere visual. Be loud and proud about paying off your debt. This isn’t a shameful thing — it’s brave and ambitious and awesome!

Want to Learn How to Get Out of Debt Quickly?

Finally, if you want more help paying down debt, you should sign up for our free mini course, 5 Days to Debt-Free. In it, we give you a ton of useful resources for getting rid of debt for good.

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