If you are reading this article, you probably have too much debt. And if you’re in a financial hole due to debt, the only real solution is to change your debt habits and start digging your way out, one step at a time.

Here are 8 ways to unburden yourself from the weight of your debt:

1. Total up all of your bills and all of your income sources to find out what’s left every month. If it’s less than nothing, take drastic steps to downsize your lifestyle.
2. Use every free dollar to start paying off your debts starting with the highest-interest obligations.
3. Check your credit rating from all three credit unions and handle the dings first.
4. Consolidate debt if possible. Use a low-interest home equity line of credit if you can.
5. Double up on monthly high-interest payments whenever possible.
6. Review every day-to-day expenditure to find ways to cut back.
7. Get advice from a credit counselor (but avoid the ones who charge fat fees).
8. Consider renegotiating your agreement with one or two lenders to ease the pressure.

Why Digging Out is Worth It

Americans are buried in debt from mortgages, credit cards, personal loans, bills, and student loans, and the amount owed in total is on the rise. In 2020, Experian reported that the average American owes approximately $$92,727 in total debt—the highest amount on record in the U.S. Who’s carrying the most debt? Members of Generation X owe a staggering $140,643, followed by Baby Boomers ($97,290) and Millennials ($87,448). This debt includes mortgages, student loans, credit cards, and other types of personal debt.

Being deep in debt can be stressful to your health. The worry over how to pay the bills and the struggle to save for the future impacts over 50% of Americans, according to a 2020 study by Capital One. And stress over finances can make it more difficult to save, budget, or even write a shopping list to help keep you on track at the store.

Digging yourself out of debt can boost your mental and physical health. Having more income freed up from debt may mean greater financial confidence, morale, and better opportunities to save for the future.

Financial experts often recommend two ways to tackle debt. The “avalanche” method and the “snowball” method. Both plans may help you focus your approach to paying down debt. An avalanche approach means you pay off your loans or credit cards with the highest interest rates first. You throw as much money as you can at them, and pay only the minimum on all your other loans. The snowball approach has you tackle the lowest amount of debt first, pay it off, and then tackle the next loan.

1. Facing the Music

If you’ve been trying to make bills vanish by throwing them away unopened, the first step is to own up to your mistakes. Clear off your kitchen table and get out all your loan statements, bills, and budget—basically everything you can think of that relates to your finances. Start adding.

The loan/credit card payments and the bills for essentials (power, heat, and water, for example) will represent your base payments. If these already substantially exceed your net income, you will either have to change your lifestyle significantly (sell the house, get a smaller apartment, take on a second job) or file for bankruptcy. Or, there may be some other steps you can take, depending on where you are. First, you need to make a plan.

2. The Pilgrimage of Repayment

Not all debts are created equal. In making your plan, you’ll need to establish a hierarchy among your debts and make a plan of attack. Experts say to target the high-interest debt first; non-deductible, low-interest debt next; and tax-deductible debt last. Speaking of high-interest debt, it’s time to stop using it.

Keep a single credit card for emergencies and quit carrying the rest entirely. Ideally, you should try to save up an emergency fund and lock all your cards away. It is time for a cash-only diet to help you to stick to your repayment plan.

3. Get the Damage Report

The next step is to check your credit rating and review your credit report for inaccuracies or patterns of bad behavior. You can get your credit rating the same way lenders, and landlords do—from each of the three credit bureaus that report on most consumer credit—Experian, Equifax, and TransUnion.

A good way to start is by viewing your credit report and your credit score, both of which you can do for free, although you can only receive your report for free once a year. Keep in mind that not all free credit score services are exactly free; some may insist that you sign on for a credit monitoring service that comes with a monthly charge if you fail to cancel it.

Once you have the report, check if it’s accurate and identify the accounts dragging your rating down. It only takes one or two late payments to move a consumer loan from a green rating to a red. If you have late payments on all of your credit accounts, you may find yourself in the “high-risk” category, despite diligently paying the loans down (although not on time). It sounds picky, but banks can afford to be uptight because they have a huge pool of people seeking loans.

4. Initiate Damage Control

Get rid of troublesome accounts and pay down your overall debt on time. Use automatic payments and tighten up your budget to get your debt under control. This will keep your credit rating from getting worse and, over time, will improve it. If your credit rating allows for it, try to get a larger, lower-interest loan and consolidate all your consumer debts into this loan. This will speed up the process of paying off your debt by minimizing the interest drain on your payments.

If your credit score allows it, you may consider a balance transfer offer from one of your credit cards. Such offers may allow you to pay off debt faster by transferring high-interest debt onto a credit card account that comes with a 0% annual percentage rate (APR) and a payment grace period that could last anywhere from six to 18 months depending on the offer.

All it costs at the front end is a balance transfer fee that is usually a flat sum or based on the percentage of the amount you transfer (3% to 5% is typical). Just keep in mind that if you don’t pay off the balance by the time the grace period ends you’ll be on the hook for high credit card interest rates.

Lines of Credit

If you have access to a line of credit, such as a home-equity line of credit, you may also be able to tap it to pay off higher-interest debt. Lines of credit have annual percentage rates in the mid-single digits, while credit card APRs are in the teens to mid-20% range.

Be aware that using such a strategy should also come with a close examination of spending habits. Using a line of credit to subsidize poor spending habits or live beyond your means is a decidedly bad practice.

Although it might seem safer to close one or two credit cards so that you aren’t tempted to use them, put them in a drawer instead, because closing cards may hurt your credit score.

5. Use Two Shovels

Whenever possible, double up on payments on your highest-interest debt. Although it’s not quite as efficient as consolidating, doubling up on payments can speed up the payback period. Once you’ve eliminated the highest-interest debt, double up payments on the next-highest debt. This strategy is called a debt avalanche.

You’ll be consistently increasing the overall rate at which your debt diminishes and getting closer to the magic number the bank is looking for before granting a consolidation loan. Once you get a consolidation loan, doubling payments will make it vanish that much faster.

6. It’s My Debt, I’ll Do It

Getting out of debt usually means making some painful decisions. If you’re simply too far behind, it might be time for some drastic measures. The softest cuts come in the form of substitution—one-ply for two, a walk in the park for a gym membership, a “staycation” over a vacation.

Harder cuts come in the form of selling whichever non-essential items you can live without. Any money raised from selling non-essential stuff should go toward a lump-sum payment against your highest interest loan. 

7. Many Hands Make Light Work

One wise step in the process of getting out of debt is to meet with a credit counselor, though this option is much more helpful if you do it before you’re desperate. A credit counselor will provide many helpful tips and make sure that you’re on the right track with your repayment plans.

They may also provide support when you meet with your creditors, adding some professional weight to any negotiating you want to do. That said, be wary of credit specialists who charge high fees while churning through an equally large volume of clients.

8. Renegotiate the Terms

Now it is time to meet with your creditors. Do your homework before you go and make sure you have all your documents in order. If you’re working with a credit counselor, plan out your approach in advance.

Visit the lending institutions with which you have outstanding debts. If you owe more than one bank, start with the bank with which you have the best history. Set a meeting time and bring your damage report, your new cash-based budget, and a humble smile. Explain the steps you’ve already taken to avoid defaulting on your debts and ask to renegotiate the debt you have at that institution.

Now that you’ve abandoned your loose credit ways and can prove it, banks will be more likely to cut you some slack. You can also seek professional help in this step by using a debt relief or settlement company.

Digging Out of Debt FAQs

How Can You Dig Yourself Out of Debt and Save at the Same Time?

Yes. You can dig yourself out of debt and save at the same time, but it takes planning. First, tackle the high-interest debt, and always pay the minimum balance on your credit cards and loans. Plan to save a small percentage of your paycheck for your nest egg, as you pay down your loans. Even a small amount in a savings or money market account will add up over time.

How Can You Dig Yourself Out of Real Estate Debt?

In 2020, U.S. mortgage debt ballooned out into trillions of dollars. If your mortgage debt is too high, there are a few steps you can take to help lower it. First, if your credit score is high enough, ask your mortgage lender about refinancing your mortgage for a lower percentage rate. By doing so, you might be able to lower your payments. Another way to dig out of your mortgage debt is to make extra payments towards the principal on your mortgage loan. By doing so, you will lower the overall mortgage.

If you can’t actually pay your mortgage, call your mortgage lender immediately. Ask about working out a payment plan or ask for a loan modification. You could consider selling your home if market conditions are strong and settling your debts. Of course, you need to make plans for new housing if you go this route.

How Can You Dig Yourself Out of Student Debt?

There are several strategies for getting out of student loan debt. If you have multiple student loans, consider refinancing your loans into one payment with a lower interest rate. Investigate loan forgiveness programs, usually only offered on federal student loans or an income-based repayment program.

If your student loans are privately held, reach out to your lenders to see if you can work out a payment plan with a lower amount of money, at least temporarily.

The Bottom Line

If you can’t dig yourself out, you may have to declare bankruptcy, which can ruin your credit rating and make you ineligible for loans or credit for years. In addition, student loans may not go away even if you declare bankruptcy.

However, you may be able to climb out of most financial holes by following the steps we’ve outlined here. For some, getting buried in debt and having to dig their way out is enough to turn them off, piling up more debt in the future. In the end, debt can wreak havoc not only on your finances but also on your mental and physical health. Digging out of debt, putting money aside for retirement and personal savings, and making sure not to go back into debt, are all ways to build a secure financial future for yourself and your loved ones.