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6 Steps to Becoming Debt-Free

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In a Nutshell

Although it’s normal to have some debt, too much debt can keep you from paying it off. For many people, getting out of debt is challenging but manageable. We've assembled a list of six steps you can take that will help you to start working your way out, regardless of how much debt you're in.

Written by Natasha Wiebusch, J.D.
Updated August 10, 2023

Do you need help getting out of debt? You’re not alone. According to Experian, in the United States, the total amount of consumer debt reached $14.88 trillion in 2020. Although it’s normal to have some debt, too much debt can keep you from paying it off, creating a debt snowball that can harm your credit score and overall financial health. 

At Upsolve, we know how difficult it can be to get out of debt. But we also know it’s not impossible. We’ve put together a list of six steps you can take to become debt-free.

Step One: Make a budget.

Making a budget will help you understand what your expenses are and if you’re currently living within your means or overspending. If you create a budget and stick to it, it will be easier to allocate some of your income to paying off debt. Here are a few strategies to help you make a budget that works: 

Track your expenses.

Track what you spend every day for one week. Weekly expenditures can range from necessary purchases, like groceries and toilet paper, to meals out or artisan coffee. Track everything, even if you think it’s not significant.

Also account for monthly bills you have, such as utilities, water, rent, cell phone, Internet or cable, streaming services, etc. Remember that some of these monthly bills can be reduced or eliminated. For example, if you have Internet service in your home, you may consider looking for lower offers from other providers. Streaming services can be easily eliminated since they’re usually easy to cancel.

Compare your expenses with your income.

Once you’ve accounted for your weekly expenses and monthly bills, compare them to your income for the month. If you realize you’re spending more than you make, it’s okay. The purpose of budgeting is to figure out why your debt is going up.

Implement the 50/30/20 rule.

Another way to think about budgeting is to use the 50/30/20 rule. These numbers represent, in percentages, where your money should be allocated: 50% should be spent on needs, 30% on wants, and 20% on savings. If you’re trying to get out of debt, you’ll have to consider how much you should really spend on wants and how much you’d like to save versus use to pay off debt.

Seek professional assistance.

If you need help making a budget, try contacting a non-profit credit counseling agency. A credit counseling agency can help you track expenses, understand how budgeting works, and give you advice tailored to your situation.

Step Two: Gather information on all your debts.

Make a list of all of your loans. Include the amount, due date, minimum payment, and interest rate for each one. Interest rates are important because they help determine how much your monthly payments are and how much you’ll pay over the life of the loan. You can find the interest rate for your loans and credit cards on your monthly billing statements. You can usually find the interest rate on the lender or credit card company’s website. 

Debts with high interest rates - like credit cards - are difficult to manage because they make it hard to decrease how much you owe on a particular loan. To help make loans more predictable, most lenders will provide you with a standard repayment plan that keeps your monthly payments the same every month. However, credit cards aren’t like this. Credit card minimum payments vary depending on the total balance on the card. This makes it difficult to know how much you’ll need to pay the next month. And if becoming debt-free is your goal, unfortunately, making minimum payments won’t help you.

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Step Three: Determine how much money you can put toward your debt.

Once you know how much you spend each month and how much you earn, you can determine what extra money you have to put toward your debt. Many of those trying to get out of debt start using all of their extra cash to pay off their loans and credit cards. Although this sounds like the right thing to do, using all of your money to pay off debt will leave you with no savings for emergency situations, such as job loss, unexpected illness or injury, or natural disasters. Before using all of your money to pay off debts, you may want to consider building up an emergency fund.

Further, if you can find ways to raise your income, either through a part-time job or a side hustle, or lower your expenses, this may help you pay more off while still creating an emergency fund by opening up a savings account.

Step Four: Make a paydown plan to become debt-free.

Which debt should you tackle first? This is a common question. In the world of debt repayment, there are two primary methods to pay off debt fast: the snowball method and the avalanche method.

Snowball Method 

The snowball method involves focusing on paying off your smallest loans first and then tackling larger loans, regardless of their interest rates. While you’ll make your minimum payments on all your debts, with this method you’ll put any extra toward your debt with the smallest balance. The snowball method is beneficial because it helps you reduce the number of payments you must manage each month, and it’s encouraging. On the other hand, because the snowball method doesn’t consider interest rates, you’ll likely pay much more on the interest that’s building up from your larger or higher interest debt over time.

Avalanche Method

The debt avalanche method prioritizes paying off the debt with the highest interest rate first while making minimum monthly payments on all other debt. The benefit of using the avalanche method is that you’ll pay less interest over time. This decreases the total amount of money you’ll end up paying to become debt-free. However, it is more difficult to stick to since it will take longer to pay off a particular loan, and you may lose motivation.

Step Five: Look for lower interest rates on credit cards and other loans. 

Lower the interest rates on your credit card debt.

There are a few ways to lower the interest rate on your credit card debt. Lowering your interest rate will lower your monthly credit card payments and also help you pay your debt faster.

One way to do this is to call your existing credit card companies and ask for a lower rate. If they can’t help you, you can look for lower interest rates at other credit card companies and apply for a balance transfer, which will transfer your credit card debt to that company. Specifically, you may be able to transfer your debt to a balance transfer credit card, which may have a 0% interest rate for a limited time. These cards are specifically intended to help folks pay off credit card debt, but you’ll have to qualify for them.

If you’re trying to pay off the balance on a card you no longer want or need, you can transfer the credit card balance to a personal loan with a lower interest rate. Lastly, depending on your total debt amount, you may be able to consolidate multiple credit card accounts into one loan. Whether the new consolidated loan interest rate will reduce your monthly payments and overall interest depends on the terms of the loan.

Regardless of how you obtain a new interest rate for your credit card, be sure to watch out for fees, including balance transfer fees or origination fees, which are common with credit card refinancing.

Look at your options for refinancing. 

You may also be able to refinance student loans, car loans, or your mortgage on your home. Although this is usually helpful, there are some drawbacks to this approach to consider as well. 

Student Loans

If you refinance federal student loans using a private lender, you might find a lower interest rate, which can lower your monthly payment. However, by removing your loans from the federal government’s loan servicer, you’ll lose certain protections that come with federal loans, like income-driven repayment plans, the ability to request a forbearance or deferment, or the student loan relief offered during the COVID-19 pandemic.

Mortgages and Auto Loans

Refinancing a mortgage or auto loan can also lower your monthly payment. However, the refinancing process sometimes includes closing costs. If you have a paydown plan and know how long it will take you to repay each debt, it will help you figure out if these closing costs are worth it.

If you’re considering opening up a new card or loan to help reduce your debt, it’s important to be careful. First, doing this may impact your credit score because credit bureaus take inquiries about your credit into account when they’re calculating your credit. If the credit bureau notices that you’re applying for too many loans, they’ll lower your credit score. If one of your financial goals is to have good credit, obtaining new loans may not be the right choice for you. If you’re not sure what your credit score is, remember that you’re legally entitled to a free credit report every 12 months (and more frequently right now as a result of the Covid-19 pandemic).

Step Six: Consider all your options.

If you work with a non-profit credit counseling agency, you can establish a debt management plan. This won’t eliminate your debt, but a credit counselor can sometimes negotiate lower interest rates on your behalf, put you on a manageable paydown schedule, and help with budgeting.

Debt Settlement

If you’re overwhelmed by high-interest rate debt, you may be able to settle your debt with the lender. Debt settlement involves agreeing to pay off a certain lump-sum amount and having the rest of your balance forgiven. If you have some money saved up, or you just received your tax refund, you may consider using it to pay off a high-interest loan or credit card.

You may be able to negotiate a debt settlement directly with a lender or you can have a debt settlement company negotiate the settlement on your behalf. These companies help some people, but it’s important to remember that debt settlement companies are not your ally. They can charge significant fees, they’re not always more successful at negotiating than you would be, and they will not protect you from wage garnishment or other actions a lender can take. Also, regardless of how you negotiate your debt settlement, it’s very important to get the agreement or settlement in writing.


Filing for bankruptcy is another way to become debt-free. There are two types of bankruptcy you can file, Chapter 7 bankruptcy or Chapter 13 bankruptcy. Which one is best for you will depend on your financial situation.

In a Chapter 7 bankruptcy, much of your debt will be forgiven, but this process will temporarily lower your credit score significantly. Chapter 7 bankruptcy is a relatively quick process, typically lasting no more than a year. But, you have to meet certain requirements to be able to file for Chapter 7 bankruptcy. For example, this process is not available to high earners.

Unlike a Chapter 7 bankruptcy, under Chapter 13 bankruptcy, you’ll agree to a payment plan to repay your debts via manageable monthly installments over 3-5 years. Although Chapter 13 is a much longer process, it is available to almost everyone. If you need help declaring bankruptcy, Upsolve has a tool that can help some people declare Chapter 7 bankruptcy for free. Upsolve can also refer you to a bankruptcy attorney for a free evaluation.

Let’s Summarize...

For many people, getting out of debt is challenging but manageable. Regardless of the extent of your debt, you’ll want to have a budget and a clear picture of all your debts and interest rates before you make a plan. The plan you construct will depend on a few things, including how many different lenders you owe and whether you’re able to lower some of your interest rates through refinancing or by taking out a debt consolidation loan.

Of course, filing for bankruptcy is another way that some people can become debt-free, either through a discharge of debts or through an affordable paydown plan. Although bankruptcy sounds scary, it may be the best choice for your situation. If you’re unsure, don’t be afraid to reach out to a debt counselor, or use our resources here at Upsolve.

Written By:

Natasha Wiebusch, J.D.


Natasha started her career as a lawyer representing labor unions and other investors in multi-state class action lawsuits. Passionate about the civil rights elements of her cases, she moved into practicing employment law to represent employees against discrimination of various ki... read more about Natasha Wiebusch, J.D.

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