Step 1: Get organized and take stock 

The first step is to fully understand what you owe by gathering statements for all outstanding debts – credit cards, loans, bills in collections, etc. Make a list including the debt amount, interest rate, minimum payment, and payment due date for each. Prioritize by focusing on high-interest debts first. 

Step 2: Build a realistic budget 

Create a monthly budget that aligns your income and expenses. List sources of income, then track all expenses – housing, food, transportation, etc. Categorize expenses as wants (nice-to-haves) and needs (essentials). The goal is to maximize the gap between income and needs as much as possible to free up cash flow for debt payments. 

Step 3: Cut expenses and increase income 

With visibility into income and expenses, look for areas to cut costs and increase earnings. Reduce wants as much as possible – cancel unused subscriptions (don’t forget the streaming subscriptions you thought you cancelled) downgrade cable/phone plans, etc. Explore options to boost income through a raise (ideally), side jobs, or selling items you don’t need. Even small savings add up greatly when devoted to debts over time, so don’t be discouraged if you find yourself chipping away rather than making great leaps and bounds. 

Step 4: Use a debt repayment strategy 

Prioritize deploying your maximum cash flow towards debts each month using a method like: 

• Debt snowball: Pay minimums on all debts except the smallest, which gets as much extra payment as possible until paid off. Then roll those payments to the next debt. 

• Debt avalanche: Make minimum payments on all debts except the highest interest rate one, which gets the available extra payment amount. Ensures paying less interest over time. 

Either way, stick to one strategy and visually track your progress to stay motivated. 

Step 5: Curb new debt as you pay off old balances 

As you pay down balances, resist the urge to rack up new debt. Cut up credit cards if need be and live within a strict cash budget. Carrying new balances will undo your hard work. 

Step 6: Develop positive money habits 

To avoid future debt issues, build habits like saving automatically, paying bills on time, living within your means, and cash budgeting. An emergency fund equal to 3-6 months’ expenses protects against going back into debt for unexpected costs that may pop up. And let’s face it, in life there are always unexpected costs. 

Step 8: Stay motivated and persistent 

It may sound cliché, but becoming debt-free is truly a marathon, not a sprint. Expect setbacks and renew motivation by celebrating small wins. Keep your goal top of mind and know what you’re working towards – the financial peace and flexibility of being debt-free so that you can live your best life. 

Need a little extra motivation? Try our 70 Day Financial Fitness Challenge to keep you on track.