What’s the Best Way to Get Out of Debt?

Getting out of debt is often a huge struggle, but there are four basic ways of trying to do so — three of which actually work.

Unfortunately, many of us start out with the method that’s guaranteed to fail: borrowing our way out of debt. That’s probably because we’ve been conditioned as a culture to think of borrowing as a solution.

So it’s fairly typical to do things like “paying off” our car or credit card debt by taking out a home equity line of credit. True, we’ll no longer owe the money on our car or credit cards, but we’ll still owe the money. And in the case of credit cards, we’re very likely to run them up again, despite our best intentions.

So what are the methods that do work?

They all have a few things in common: we have to stop borrowing money, and we have to start paying back enough to where we make a dent in the principal. It also helps to build up a little bit of an emergency fund first so that we’re less tempted to borrow when (not if) an emergency or unexpected expense comes up.

In general, the methods that work are variations of the debt snowball method, where you pay as much as possible to one chosen debt in the list while making minimum payments on the rest. But beyond that, it’s a matter of knowing yourself. That’s because the key to getting out of debt (and STAYING out of debt) is to organize your debts based on your own personality and emotions, and to choose the method that works best for you.

If you’re an extremely disciplined, highly motivated kind of person that’s very into the math of things, you’re probably going to be interested in paying off your highest interest rate debts first. The thing is, not many of us are really as disciplined or motivated as we think we are. (If we were, we might not have gotten into debt in the first place.) So if your high interest rate debts are also high balance debts, this may be a method that’s hard to maintain over the long haul.

If you have certain debts that are really lighting a fire under you for a particular reason (such as owing money to relatives or the IRS), the best method for you might be to focus on paying off those particular debts first, regardless of their interest rates or balances. In that case, the motivation comes from the outside source — since owing money to the IRS or relatives is usually particularly unpleasant.

The final method is to organize your debts in order from the lowest balance to the highest balance, regardless of interest rates. This method plays on our natural tendency to keep doing things that make us feel good. And what makes most of us feel good? Seeing quick and visible progress on the things we’re working on. When you start by paying off your lowest balance debt, you see good progress right away, which is very motivating.

No matter which method you choose, remember that it starts with a firm commitment to end the cycle of borrowing and get out of debt for good.