One Step at a Time: Getting Out of Debt Gradually

Feeling like you’re saddled with more debt than you can handle tends to be stressful. The link between how people’s perception of their financial well-being affects their overall well-being has been researched and documented. It’s tough to feel secure when debt makes it seem like your finances are controlling you, rather than the other way around. It’s only natural to want to find a solution to this money-related discomfort as soon as possible.

But getting out of debt rarely happens overnight, or even within the course of a few weeks or months. The key is taking one step at a time with the goal of getting out of debt gradually and sustainably. Here are three strategies for doing so.

Stick to a Repayment Strategy

You’re making payments toward your debt every month, but it feels like you’re barely making a dent in your balances. How is this possible? High interest rates may be to blame here. In some cases, minimum payments may barely cover rapidly compounding interest — barely bringing down the principal balance owed.

Sticking to a targeted repayment strategy will help you make actual progress on paying down your debts one at a time. It’s up to you in which order you’d like to prioritize your debts.

Many people find the snowball method, coined by financial expert Dave Ramsey, gives them the motivation they need to keep working toward becoming debt free. Here are the steps:

1. List your debts in order from smallest balance to largest balance.
2. Keep making minimum payments on all your debts every month.
3. Pay as much as you can toward your debt with the smallest balance.
4. Keep repeating until you’ve paid off every debt.

The avalanche method offers an alternative in which consumers repay their debt in order from highest interest rate to lowest interest rate. This aims to minimize how much interest can accumulate during the repayment process.

Sticking to one of these debt elimination strategies will help you pay down debts consistently each month, one by one until they’re all gone.

Speak with a Credit Counselor

Credit counseling can help you gain a better understanding of your debt and your options for dealing with it. You can typically meet with a credit counselor at a non-profit agency for free, which is why it’s a solid first step for anyone to take.

Your counselor should be able to offer advice on managing your money, personalized budgeting and addressing your debt. You may also be eligible to enroll in a debt management plan (DMP) through that agency, which is a structured program for paying back debts in three to five years — often at a lower interest rate than someone repaying debts on their own.

Make a list of any questions you might have ahead of meeting with a credit counselor and prepare all the necessary financial documents you’ll need to bring along. This will help you get the most value out of your session.

Keep Building Your Emergency Fund

It may seem more logical to pay down debt than to save money. But it’s important to keep building your emergency fund month by month. Why? Because then when an unexpected expense crops up you’ll be able to handle it without needing to incur more emergency debt. Putting sudden expenses — like a car repair, hospital bill, vet visit or home repair — on a credit card with interest will keep you trapped in debt even longer.

This is why experts recommend you make payments toward debt and keep building your emergency fund.

Take baby steps like these toward getting out of debt. Sustaining your efforts over time will make a lasting change in your financial situation.