How To Get Out Of Debt

Getting out of debt is a bit like dieting. There are essentially two ways you can address the problem.

1. Increase your income (take more exercise)


2. Decrease your spending (cut your calories)

Either approach on its own can work, but generally a combination of both is the best strategy.

It is also absolutely crucial to understand and address the reasons why you got into debt in the first place. An unexpected windfall may solve your current debt issue but unless you ensure that you’re in control of your spending habits, you may find that you’re back where you started sooner than you think.

Likewise, extreme budget control may be feasible, even necessary, in the short-term but longer-term unless you allow yourself space for some treats, your run the risk of destroying all your good work through a boredom-induced spending spree. Look on getting out of debt as a chance to examine the priorities in your life and an opportunity to clean out clutter, both mental and physical.

The first step in getting out of debt is acknowledging that you’re in it in the first place. The next step is working out why. Sometimes debt really is caused by events over which an individual has little, if any, control, such as an unexpected illness or bereavement.

Many times however, debt is caused simply caused by people living beyond their means. When interest rates are low and credit is easy to obtain, it can be extremely tempting to use credit to finance wants without thinking about the long-term cost or the consequences of a change in circumstances, such as unemployment. A trip through old bank and credit card statements can clear this up, if there’s any doubt.

What did you really spend that money on?


When you’ve accepted there’s a problem and worked out why it happened, it’s time to make a plan to fix it.

To do this you need to work out what your essential outgoing are and how much (if any) money you have left over after paying them. Essential outgoings are what you need to spend to keep body and soul together. These would include costs such as: rent/mortgage, utilities, food and groceries, telephone, travel and childcare.

Now make a list of all your debts and whether they are secured or unsecured and how much interest they charge. If your debts include credit cards then you need to check if you are carrying a cash balance and if so how much it is and what the interest charge is. Make a note of the minimum monthly payment. Hopefully once you have done all this you’ll find that you should have money left over each month, which is your starting point for dealing with your debt.

If you still find yourself short then you need to see if there’s any possible way to raise your income to make up the shortfall or if you can make any lifestyle changes to reduce your outgoings. If neither of these is feasible, then it’s time to itemize your assets – all of them, including your house and car if you own them, because no matter how painful it may be to have to sell them, the reality is that unless you deal with your debt, sooner or later you’re going to lose them anyway.

If you are still unable to free up enough funds to have a realistic possibility of paying back your debt then you should urgently seek individual financial advice from a debt-management organization.

Depending on how big the gap is you may be able to resolve the issue by creating a payment plan with your creditors as part of which they agree to freeze the interest on your debts or in worst case you may need to apply to have your debts cancelled by legal means such as bankruptcy. This is a very serious situation however if you are unable to address your debts by other means, then it may be your only option and it is perfectly possible to rebuild your life afterwards.

Most people, however, find that it is possible to deal with debt issues without having to resort to formal arrangements and many people find that although it can be challenging in the short term, in the long term it can be a valuable learning experience. You’ll very probably find that you had more resourcefulness and creativity than you ever imagined.


The key to getting out of debt is to spend as little as possible and to use as much of your income as you can to reduce your debts, starting with the highest interest debt as this is the one which will cost most if left unpaid.

As you pay off your debts, the amount you pay in interest will also come down, freeing up more money to pay off more debt. This creates a virtuous circle which will (eventually) end in you being debt free and probably having a whole new appreciation of the value of money and the importance of everything money can’t buy, in particular the love and support of those close to you, whether they be family or friends.

Many people find that it helps to keep a spending diary, at least for the first few months. Write down, literally, every penny you spend so that there are no excuses for not knowing where your money’s going.


Initially your priority is not to increase the payments on your debts, although this is, of course, important; it’s to make sure you have an emergency fund in place for when life happens so that you don’t have to take out more credit to deal with it. How much this needs to be will depend on your circumstances, however a good rule of thumb is a month’s living expenses (and over the longer term, it’s wise to raise this to at least 6 months). Once you have this in place, then you start the debt repayment process beginning with your highest-interest debt.

As getting out of debt requires lifestyle changes, at some point you are likely to want to explain the situation to your loved ones. Often the best way to do this is along the lines of “I’m cutting back on my spending so that I can be debt free in about X month’s/year’s time”. This reassures people that you do have a plan in place to resolve your situation and explains why you are making changes to your life. People who are worth caring about will support you in every way they can as you make your journey towards freedom from debt.