An Actual Helpful Guide On How To Get Out of Debt

I have created an actual helpful guide to getting out of debt. Financial independence can be difficult for most before getting out of debt. In step 4 of financial independence, i created a guide to cut expenses. The costs saved from cutting expenses should be used directly to pay of debt. If you are not pursuing financial freedom, you still get the great benefits of getting out of debt.

Based on the post i made on financial independence, i will be doing elaborate posts on all the 8 steps in my financial independence post. This post is covering the fifth step to financial independence, which is getting out of debt.

Based on step 4 to financial Independence, which you can read here (Fourth step to financial independence), we established why everyone needs to cut expenses. The fifth step is to getting out of debt.

How To Get Out of Debt

Getting out of debt is really easy. Pay the debt. That is all you have to do.

However, it can be rather difficult to exit debt when living paycheck to paycheck. Therefore, you have to cut expenses, make a strict budget, and track your expenses. If you have reached those three steps, you can start paying of debts. If you have not, go to my first step on how to track expenses properly.

How To Get Out of Debt Faster

There is a lot of ways to get out of debt. The fastest ways to get out of debt requires either cutting expenses, changing lifestyle/attitude or increasing income. Changing your lifestyle and attitude along with cutting expenses costs absolutely nothing. This is something that you can do rather quick. Changing lifestyle can take some adjusting. However, the more you want it, the faster you adjust.

Do not burn your money with no purpose.

Stop Comparing To Others

One of the biggest mistakes anyone in mankind makes is comparing themselves to others. When people around you line up for the new iPhone or Samsung, you do not need one as well. You need one when you current one is broken.

Stop buying fancy shit, to look fancy, when your bank account says broke!

Cut Money Hungry Habits

Whatever you do in life, you have a habit which eats your money from you wallet. Whether that is smoking, clothing or video games there is something which prevent you from getting your debt down. If you have build a budget, which cannot accelerate your payments towards debts, you should cut some of your expensive habits.

Prioritize Debts

Prioritizing debts is a great way to increase your monthly debt contribution. As just mentioned, if you have expensive habits you should break them. If you have some hobbies, you should consider to prioritize the debt.

Prioritizing debt will also free up more money in the future for you hobbies and habits. Unless it is smoking, just stop smoking.

Pick a Side Hustle/Pick Up a Part Time Job

When picking a side hustle you should consider the options to how you would make the extra income. Some can go garage selling, buying things cheap and selling them for more on Ebay. Some have skills building websites which can earn a modest income. These alternatives requires a bit of money to get started.

However, if you have any skills you can provide digitally you can go to or If you are good at gardening you can start a side hustle in the weekends where you go knocking on every door in the neighborhoods around you and offer to do their garden.

Last option is to get a job at a pizzeria, grocery store, or alike. This will give you an extra income, and you can do night shifts and weekend shifts.

Create An Extremely Lean Budget

A fast method to getting down debt it to make a very lean budget. While it have been discussed how to cut expenses and expensive habits, a lean budget leaves no room for fun. When going for a lean budget, you go for only the needs (housing, food, electricity, etc.) and you downsize them as much as possible. This means cutting off the heat. Instead you take an extra layer of clothing on. Furthermore, you turn of all electricity in rooms you are not in. Not just standby, but actually off.

According to the average household uses €90 on standby appliances. While it is not much in the big picture, however, with a lean budget, you cut where you can. This also means you will go for bulk purchases.

Methods of Get Out of Debt

There are multiple methods to getting out of debt. The previous discussed methods are to accelerate you way out of debt. These are specific methods of getting rid of the debt.

Snowball Method

The snowball method is when you pay your lowest debt first. This way you will slowly build up a larger disposable income to pay for other debts.

The advantage of the snowball method is that it works like a financial psychologist. You will with time see that you debt decrease, but more importantly, you will have less accounts to pay off.

Sadly, there is also disadvantages of the snowball method. The snowball method does not account for interest rates. Which means a loan on 20.000 with an annual interest of 15%, will be more expensive than a loan of 1.000 with an annual interest of 5%. Therefore, you can end up paying higher interest with the snowball method.

Step 1: List All of Your Expenses

The first step is to list all of your debts. You will list all of your debts, from the lowest to the highest amount. You do not care about the interest rate in the snowball method, only the size of the debt.

Step 2: Pay Towards the Lowest Debt

Instead of paying the minimum amount each month, you will start to pay the maximum amount you can towards the lowest debt, while maintaining the lowest payments to the rest of the debts.

Step 3: Get the Snowball Rolling

When you have paid off the first debt, you use the extra cash to pay off the next debt.

In essence that means, you have paid off the first loan. You now continue with the second loan, with the minimum payment plus the payment you had on the first loan.

Step 4: Repeat Until There Is No More Debt

You repeat this process until you no longer has any loans. This process is really simple, and can fast track the the debt payments.

Refinance Mortgage and Ask For Lower Interest Rates

Refinancing can be a good method of getting a lower interest rate, or lowering the monthly payment, to focus on other loans. However, you should be aware of the risk with refinancing. But first, why refinance?

  1. Refinance for a lower interest rate, for lower payments
  2. Go for shorter loan term
  3. Refinance from high interest rate, to a lower interest rate

When going for a refinance there is multiple ways to do so. First is to go to your bank and take a casual talk about your purpose for refinancing. Your own bank will tell you what options you have with them. You can then ask them to make some alternatives for you to evaluate.

1. Refinance For A Lower Interest Rate, For Lower Payments

Refinancing for a lower interest rate can be good for multiple reasons. One is that you get extra cash on hand, that you can use to pay other debts.

Another reason is simply to pay lower interest in the loan term.

However, you have to look at the big picture. If you have had a loan for 15 years and then decide to extend the loan term from 15 years to 30 years you can end up paying a lot more in interest in the big picture.

On a brand new loan the lifetime payment on a interest reduction can be significant. However, keep in mind that the bank typically charges X amount of money when refinancing. So include that to the calculation when considering refinancing.

2. Go For Shorter Loan Term

Going for a shorter loan term will force you to make larger payments, and therefore also get rid of the debt faster. The standard mortgage loan term are between 15-30 years. If you have the money to switch from a 30 year loan term loan to a 15 year loan term, you could easily do so.

The main reason for refinancing to a short loan term is to pay less interest in the loan term.

3. Refinancing From A High Interest Rate to A Lower Interest Rate:

Typically the bank will charge you X amount of money to refinance. This money has to come from either your own savings or equity in your home. Shifting debts comes with risks you should be aware off. If you are going to replace unsecured debts with a secured loan you will take in additional risks. This is when taking home equity loans to pay e.g. credit cars debts. This way you will put your home at risk if you default, here is why.

If you default on credit card debt, it is unlikely that the credit company can foreclose your home. However, if you pledge you home as collateral by using the mortgage/equity loan, your home will be at risk if you default.

If the Bank Does Not Want To Refinance Or Give Lower Interest Rates:

You should consider finding another bank. Finding another bank can be beneficial if you want to refinance. You find multiple banks, and let them “fight” for you. This way you can take the bank which provides the lowest interest rate, with the lowest refinance costs.

You should also beware, that just because you are looking for a new bank, does not mean that any bank will offer you anything better than you have currently.

Sell Everything You Do Not Need

Selling everything you do not need is a good method to pay down debt. This especially apply to people which are on low incomes. If you just bought a new phone, and you keep the old phone “in case it dies”. Sell it. Normally, phone providers can offer a phone for you while yours is getting repaired (if it should even happen). The cost of lending a phone can be free or cost a lot less that what you could get for your old phone.

So everything you have two of, consider selling it.

Highest Interest Payment (Debt Avalanche method)

As discussed in the snowball method, the high interest is not accounted for.

Focusing on the highest interest debts, you will in the long run pay less in interest. Whereas it will most likely not pay off all debt accounts just as quick as the snowball method.

The method is just like the snowball method, however, focusing on the interest instead of debt amount:

Step 1: List All of Your Debts

The list you are going to make, is prioritizing the highest interest rates on top of the list. No matter the amount of the debt, the interest rate is the focus.

Step 2: Pay Towards the Highest Interest Debt

Set the minimum payment for all of your debts, except the highest interest debt. You focus all of your disposable money on paying of the highest interest rate.

Step 3: Getting Rid of the Interest Rates

Focusing down the highest interest rate, will in the long run decrease your overall spend on interest. Therefore, when you get rid of one debt, simply continue to the next debt.

When the first debt has been paid, you use the money which was previously going toward you first debt, and now use it as payment for the second interest rate debt.

Step 4: Repeat Until There is No Debts Left

You will repeat the process until you have no more debt. With this process you are looking to pay less in interest, however, it might take longer to pay of the debt.

How to Get Out of Debt With Low Income

When you are on a low income you still have the opportunity to get out of debt. However, it is a lot more difficult when you live paycheck to paycheck. However, getting out of debt with low income is not impossible. It will require more work, if you want to stop living paycheck to paycheck.

Making a change - Low income debt
Making a change – Low income debt

The simple truth is that, people who has disposable finances after all their expenses, can normally do one of the previously mentioned methods. However, if you are living paycheck to paycheck you will have to do multiple of the above.

How To Combine Debt Methods

With a low income the main priority is to get more cash on hand. This means that you should try to do the following things:

  • Sell things you do not need
  • Snowball method
  • Get a side hustle/part time job
  • Create a very lean budget
  • Quit hobbies and expensive habits

The reason debt avalanche method is not recommended is that you should focus on increasing your cash on hand. Which will allow you to pay more towards debts. Therefore, the snowball method is recommended. When you start to free up cash, you can consider to go for a avalanche method. However, on a low income you should focus on lowering expenses and increasing income.

To free up some cash, you can also sell things you do not need, or never use. This can help you to make additional payments for any debts. Same thing goes if you get a side hustle/part time job. The side hustle/part time job is only used as a way to pay down debt. You should never use the money for new habits, or to spend more on your habits.

You should also try and walk through your bank statement to find things that can be removed. This is also where cutting the habits and hobbies can be long term profitable, to make room more higher debt payments.


There is many methods and ways to increase the speed of repaying debt. Whether you are on a high or low income it is possible. It is mostly a matter of attitude and therefore everyone has the opportunity to do it. For people living paycheck to paycheck, you will of course experience a harder time, than those who already have 50% of their income to use, but use it on the wrong things.

While there is no one way to get out of debt, there are multiple ways of accelerating the repayment. While, some has to work harder for it than others, it should not be an excuse to be on a low income.

Disclaimer: This post may contain affiliate links. I may receive a commission when you, the visitor, uses an affiliate link. Investing involves risk of losses.
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I am ThePoorInvestor and I am on a financial independence journey. I am investing in P2P-lending to create a high cash-flow return. I disclose my income, expenses, investments, and everything financially relevant.
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