3 Steps to Help You Get out of Debt

Take any cards out of your wallet or purse, put them in a cup of water and stick them in the freezer. The hassle of pulling out this block of ice later on, and thawing it, can help put the brakes on using plastic for an impulse purchase.

Do a lot of online shopping? Visit your go-to sites and delete any credit card or other payment method on file. (No more one-click ordering!) Don't commit to taking on a larger debt, like a car payment, until you have remedied your situation.

Next, look at your finances to see how much money is going out each month and how much is coming in. To do that, sit down with a pad of paper or a blank document on your computer to tally it all up.

"We've had people print out 12 months of bank account statements to figure out where the money is going,” says David Bizé, a financial planner with First Allied Securities in Oklahoma City. Alternatively, use a smartphone app like Mint to track your spending — or use the low-tech option suggested by Opperman: Carry around a small notebook and write down every purchase.

If your cash outflow exceeds your inflow, you now see exactly how much spending you need to cut — or how much more income you need. Going out to eat or drink less often is an easy place to start. Some other ideas:

• Cut off the kids. “People jeopardize their own retirement by giving adult children money, covering cellphone bills, making their car payments or student loan payments,” Opperman says. “Some have adult children who live with them but are not contributing to the mortgage or other expenses. Show them that you're in the red and you need to stick to a budget."
• Cull your charges. Cancel subscriptions you can do without, whether it's the health club you rarely visit or the 57 TV channels you never watch. Investigate the costs of bundled and unbundled television, internet and telephone services.
• Shop mindfully. “Pay attention,” says Karl Leonard Hicks, a planner at the Leonard Financial Group in Riverside, Calif. “Don't spend on things that don't mean anything to you and don't rationalize that something is necessary when you know it isn't.” Don't even window-shop; “just looking” is a slippery slope.
• Assess your insurance. Increasing the deductibles on your car and home insurance can reduce your premiums dramatically. If you no longer need your life insurance, you might think about taking the cash value of a whole life policy or stop paying premiums on a term policy.
• Moonlight. Consider taking on a short-term “debt repayment” job — a part-time role with a paycheck directed solely toward the balances you owe.

Step 2: Start a pay-down plan

Your goals for repayment are simple. You want to satisfy creditors, minimize the interest you pay and retire each debt, one by one.

Keeping creditors happy is key: Once you default on a loan, the trouble begins. You can lose a car to repossession or a house to foreclosure; you might also face legal consequences. So calculate the cash you'll need each month to make the minimum payment on each of your debts. With that number, you can build a plan (using the previously mentioned tactics) to free up enough cash each month to keep each debt in good standing.

Next, focus on credit cards, since they have the highest interest rates by far — around 18 percent nationally, compared with about 5 percent for car loans. Experts often suggest one of two methods for reducing card debt when you carry balances on more than one card:

• The avalanche. Line up your credit card bills from the one with the lowest interest rate to the highest. Make just the minimum monthly payment on all the cards other than the one with the highest interest, then put as much as you can (more than the minimum, that is) on the highest-rate card. When it's paid off, repeat with the card that has the next-highest rate, without cutting the total monthly dollars you spend on reducing debt. This strategy minimizes the interest that you pay.
• The snowball. Put the most you can toward the card with the smallest balance and make minimum payments on the rest. Once you've paid that off, repeat with the next largest balance — again, without reducing your total monthly card payments. By attacking the smallest debt, you'll speed up the time it takes to get that first satisfying feeling of cutting one of your balances to zero. “It's a big boost when you can start scratching accounts off your list,” Opperman says.

Whichever method you choose, automate your payments. “When you forget to pay a bill, the late payment is outrageous, plus you're paying extra interest,” Opperman says.

Step 3: Work on the Rest

If you have an auto loan, rethink your transportation needs. If your car is worth more than the loan, consider selling it and buying a lower-cost used car with the proceeds. You'll remove one of your monthly debt obligations, and your insurance costs will drop, too.

Roughly 16 percent of consumer credit reports reveal overdue medical obligations, one study reveals.

Don't sign a car lease, since that's a monthly payment you can't shed. “If you just roll one lease into the next,” Opperman says, “you'll never own free and clear."

Finally, consider just getting rid of a car. With the growing availability of ride-hailing apps and hourly car rentals, this won't necessarily be a sacrifice.

Now turn to any medical debt you may have. Negotiate payment terms with providers, letting them know about the challenges you face. Make it clear that you want to make good on your debt, but you need time.

Investigate the charity and financial-hardship care offered by many hospitals. Medical debt rarely carries interest payments, but it gets handed over to collection agencies relatively quickly. It's much harder to get a bill reduced after it goes into collection, says Mychal Eagleson, a financial planner at An Exceptional Life Financial in Indianapolis.

Next up is student loans. If yours are federally backed, you probably have a low interest rate. Make regular payments until you've paid off your higher-rate debt. Investigate loan consolidation, which can lower both your rate and your monthly payments.

Your mortgage is usually the last spot to direct additional funds. “Just make the payments. Don't put in anything extra,” says Dennis Nolte, a financial planner at Seacoast Investment Services in Winter Park, Fla.