Smart Money

3 Proven Strategies To Get Out Of Debt

Plus One Thing To Do Before You Start

Ben Le Fort
Dec 12, 2019 · 7 min read
All of the pieces on a chestboard surround the king who has been toppled over.
All of the pieces on a chestboard surround the king who has been toppled over.
Photo by O12 on Unsplash

Debt is one of the leading causes of anxiety, stress, and depression. I lived with a heavy amount of debt from the age of 18 until I was 25. During the majority of that time, my debt was greater than my annual income. That is a very defeating feeling and makes a lot of people feel like they can never pay off their debts. While it may feel impossible right now, you can live debt-free.

In this article, I am going to discuss three proven strategies to get out debt.

The first step to paying off your debt is to build a strong emergency fund. You might be thinking “how could the first step to paying off debt have nothing to do with my debt?

It’s a good question. I am assuming that your goal is not only to get out of debt but to stay out of debt. If you want to ensure you stay out of debt, you’re going to need a strong emergency fund of cash savings.

Let’s say you’ve spent the last 6 months throwing every penny you have against your credit card debt. You’ve been doing a great job paying it down and are starting to feel good about your financial situation.

Then it happens.

Your car breaks down and you need to pay the mechanic. Where are you getting that money from?

You are borrowing it.

You’ve spent the last 6 months paying off debt, and now the debt piles back up. You’ve just taken a giant step backward and that’s when people begin to lose hope. Don’t let this happen to you.

I know it’s not what you want to hear but you should have at least a few month’s worths of basic living expenses set aside in cash to cover unexpected costs.

If you are unsure of how much money should be in your emergency fund use this free tool to find out.

  1. Consolidate your debt
  2. The snowball method
  3. The avalanche method

The idea behind debt consolidation is simple. You roll all of your high-interest debt such as credit cards, payday loans and other debt into a single payment with a lower interest rate. This can greatly accelerate the time it takes to pay off your debt.

There are generally two ways you can consolidate your debt:

  1. Pay off your debts with a Home Equity Line of Credit (HELOC).
  2. Apply for an unsecured consolidation loan.

Each method has its advantages and drawbacks. Using A HELOC would likely give you the lowest rate of interest but you would be putting up your house as collateral. If you don’t pay, you could lose your house.

You would apply for an unsecured consolidation loan through your bank. They would evaluate your creditworthiness and if they give you the loan the bank would pay off all your debts for you. Going forward you would pay the bank back the total value of your debts.

Consolidation loans typically have a higher interest rate than a HELOC but lower than a credit card.

If debt consolidation does not work for you then you’ll need to use either the snowball or avalanche method to debt repayment.

The “snowball method” to debt repayment was made popular by Dave Ramsey. It is a four-step process.

  • Step 1: List your debts from smallest to largest.
  • Step 2: Make minimum payments on all your debts except the smallest
  • Step 3: Pay as much as possible on your smallest debt.
  • Step 4: Repeat until each debt is paid in full.

The snowball method is hugely popular because it taps into a simple truth about getting out of debt and managing money. It’s more about habits and emotion than technical knowledge.

The whole idea behind the snowball method is that by focusing on your smallest balance and getting that paid off quickly you gain confidence. With each loan you clear, you begin to believe that you can accomplish your goal of getting out of debt and that keeps you focused on your mission of getting out of debt.

I like the snowball method because as I’ve written in the past if you are trying to accomplish a task that seems impossible the only way to guarantee success is to take massive action and see early results. This creates a virtuous cycle that can help you accomplish your goal.

If the snowball method is about psychology, the avalanche method is all about cold hard numbers.

Rather than paying off the loans with the smallest balance first, you pay off the loans with the highest interest rate first. It is also a four-step process.

  • Step 1: List all your debts from the lowest interest rate to the highest interest rate.
  • Step 2: Make minimum payments on all your debts except the debt with the highest interest rate.
  • Step 3: Pay as much as possible on your debt with the highest interest rate.
  • Step 4: Repeat until each debt is paid in full.

If you are the kind of person where motivation isn’t an issue and your main priority is to get out of debt as quickly and efficiently as possible, the avalanche method is for you.

When I say the avalanche method is more “efficient” I’m referring to the fact that by focusing on the debt with the highest rate of interest first, you will pay less total interest by the time you have cleared all your debts.

If you have the discipline to “stick with it”, knowing it might be a long time before you get your first “win”, this might be the route for you.

Let’s assume you have the following debts.

  • Student loan: $15,000 balance at 7% interest.
  • Car loan: $9,000 balance at 6.5% interest.
  • Credit card 1: $3,000 balance at 18% interest.
  • Credit card 2: $4,500 balance at 19% interest.

Let’s also assume the total minimum monthly payments for all your loans is $320.

Let’s review how you would clear these debts in 5 years using both the snowball and avalanche methods.

Using the snowball method you would pay the debts off in the following order.

  • Credit card 1
  • Credit card 2
  • Car loan
  • Student loan

You would continue making the minimum payments on all of your debts except credit card 1. You would apply an additional $325 per month beyond the minimum payment to credit card 1.

After 10 months credit card 1 would be paid off.

Then you would increase your payment on credit card 2 by $325 + the amount of the minimum payment you were making on credit card 1. After 27 months credit card 2 would be paid off.

You would then follow that same process for all of your other debts as listed above until your debt is fully paid off in the 5-year timeframe you set for yourself.

Using the snowball method you would pay $7,033 in interest during the 5 years it took you to clear your debt.

Using the avalanche method you would pay the debts off in the following order.

  • Credit card 2
  • Credit card 1
  • Student loan
  • Car loan

You would continue making minimum payments on all loans except credit card 2. You would apply an additional $325 per month beyond the minimum payment to credit card 1

In 16 months it would be paid off.

You continue this process until all of your debts are paid.

Using the snowball method you would pay $6,945 in interest during the 5 years it took you to clear your debt.

Both the snowball and avalanche methods have their pros and cons.

  • The avalanche method results in paying less total interest.
  • The snowball method allows you to clear your first loan faster, providing you a psychological boost and confidence to keep going.

Both of these methods are perfectly valid and have worked for many people. The right strategy is the one that you can stick to. If you feel like motivation to keep going will be an issue for you, consider the snowball method. If your only concern is getting out of debt as quickly and efficiently as possible the avalanche method might be right for you.

Pick a strategy and start hammering away on that debt!


Bonus: Need support to start taking action? Join the 30-day money challenge where you will be given a new action item to take every day for 30 days. You also get access to the private Facebook group of people who are in the same boat as you.

Click here to Sign up for the 30-day money challenge.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions

Making of a Millionaire

Stories about money, personal finance and the path to financial independence.

Ben Le Fort

Written by

Sharing the money lessons I’ve learned on my journey from debt to Financial Independence. Email me for freelance & Business inquiries: info@benlefort.com

Making of a Millionaire

Stories about money, personal finance and the path to financial independence.

More From Medium

More from Making of a Millionaire

More from Making of a Millionaire

Why Passive Income Is a Myth

More from Making of a Millionaire

More from Making of a Millionaire

How Much Income is “Enough”?

More from Making of a Millionaire

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade