Drowning in Debt? 10 Actionable Steps You Can Take Today

When you’re in over your head and drowning in debt, you may get a sense that everyone around you has it all while you’re struggling to make ends meet.

Maybe you’re even pretending everything is fine and money isn’t an issue, but you are constantly thinking about the mountain of debt you face.

The truth is you don’t know anyone else’s financial situation. According to Experian, the average consumer has $104,215 in debt. The key is to find ways to get out of debt and stay there. It takes practice, consistency, and lots of grace, but with these ten steps, you can be well on your way to becoming debt-free.

Take these 10 steps if you’re drowning in debtfirs

1. Check your credit

You can’t get control of your debt if you don’t know what debt you have. Start by downloading your free credit reports from all three credit bureaus: TransUnion, Experian, and Equifax. I suggest pulling all three reports at once so you can see all the accounts you have outstanding, but you can also pull one at a time if it’s less overwhelming.

The free credit reports show your credit history, not your credit score. Your history tells the story, but I sometimes find that it motivates me to make the necessary changes when I know how it will affect my credit score. Credit Karma offers free credit report analysis and monitoring on an easy-to-use dashboard to help you make these important decisions.

2. Track all money coming in and going out

Be honest with yourself: Do you know how much money you bring in and how much you spend monthly?

I suggest setting aside a few hours to review your bank and credit card statements for the last 12 months to see how much you bring in and spend monthly.

I will warn you: This step will be eye-opening and possibly upsetting. If you underestimated how much you spend each month, this is a great exercise to help you take control of your spending and finances.

You can make this as simple or as complex as you want. For example, you can fold a piece of paper and write “Money In” items on the left and “Money Out” items on the right, or you could take it a step further and create a spreadsheet.

No matter how you do it, include these categories at a minimum:

• Income from your job
• Income from a side gig
• Mortgage or rent payments
• Utilities
• Internet
• Phone
• Gas
• Groceries
• Clothing
• Pets
• Insurance
• Student loan debt

3. Cut out unnecessary spending immediately

When you’re buried in debt, making a few changes immediately to cut unnecessary spending can help money. Even if the changes are minor, every dollar adds up.

Here are a few examples to get you started:

• Cut cable: Depending on where you live and your chosen plan, this could save $50 - $150 per month
• Reduce impulsive spending: Even cutting out $50 a month saves you $600 a year
• Cut out a daily $5 coffee: If you avoid spending $5/day, that’s $152 per month or $1,825 per year you could save

While these are hypothetical, you get the gist. In my example, you could save $3,025 or more per year! Finding ways to cut even $5 adds up fast and can help you have more money to pay off debt.

If you are unsure where you overspend or you sign up for many free trials and subscriptions, consider an app like Rocket Money.

Rocket Money connects to your accounts and uses a special algorithm to securely comb through recurring transactions such as:

• Gym memberships
• Box/media/magazine subscriptions
• Cable TV contracts

You can see the list of your current subscriptions in your dashboard, along with a list of upcoming recurring bills. If you don’t want any of the listed subscriptions any longer, let them know and their concierge will cancel them for you.

In addition to canceling your subscriptions, Rocket Money also offers spending breakdowns and automatic savings so you never have to forget to save again.

4. Set a budget

I know, this step probably sent shivers down your spine. But budgets aren’t bad, and once you get used to using one, you’ll wonder how you ever did without.

Now that you know how much money you bring in and how much goes out, you can create your budget. This step may coincide with the previous step because you’ll see what you can and cannot afford as you create your budget.

The idea is to have a budget that accounts for every dollar. For example:

• Housing bills
• Utilities
• Healthcare bills
• Food
• Entertainment
• Savings
• Debt payoff

If you want a budget model to follow, consider the 50/30/20 rule. This budget allocates 50% of your income to necessities, 30% to wants, and 20% to debt and savings. It gives you a guideline for budgeting your money and using it strategically.

The idea is to have some money for fun but to primarily focus on necessities, saving, and paying off debt.

5. Celebrate the small wins to stay motivated

I’m all about rewards. They keep me motivated and push me forward. Now, I’m not talking about going on a spending spree because you paid off a large credit card. Keep your rewards small but rewarding enough that you’ll keep going.

I suggest setting up a reward system for “small wins.” For example, rather than setting a goal to pay off a $10,000 credit card, reward yourself for every $1,000 you pay off. This is less overwhelming and more attainable. Keep the rewards small and, of course, within your budget to avoid going further into debt.

6. Contact your creditors

If you’re drowning in debt and can’t keep up with your payments, you must contact your creditors. Ignoring them doesn’t make the debt go away; it only worsens your debt and problems.

Honesty is key when contacting your creditors. Tell them your situation and what you’re doing to fix it. They may then have solutions to ease your burden temporarily, such as:

• Extending your repayment period
• Decreasing your monthly payments temporarily
• Deferring monthly payments for a couple of months

This doesn’t mean they will forgive your debt; you will still owe it. But with their help, you can get caught back up faster, and better able to find a way to afford the payments moving forward. The key is to avoid the account going to collections, as getting a payment plan to pay off collections is harder.

7. Start a side gig

If you’ve maximized your budget and are still paying out more than you bring in, consider other ways to make money. There are many side hustles anyone can start to earn money to pay off debt. The key is to pick something you like that doesn’t feel like another “job” and to allocate the funds toward your debts, not to allow more spending.

To choose the right side gig, make a list of what you love to do and what you excel at and compare it to these opportunities:

• Rideshare driving, such as with Uber
• Deliver food for DoorDash or Instacart
• Start a freelance gig on Fiverr, such as writing, editing, or website design
• Answer surveys on Survey Junkie
• Shop, play games, and answer surveys on Swagbucks

8. Start saving money

Even when you’re broke and in debt, saving money is necessary to set you up for long-term success. Even if that means setting aside $5 per paycheck, commit to starting somewhere. While it’s not much, it’s a great habit to get into and can grow your nest egg over time.

If you feel like you can’t save, sign up for a micro-saving app like Acorns. You can link debit or credit cards, and the app automatically rounds up your purchases to the nearest dollar. The spare change gets invested once you accumulate $5, and it happens faster than you think.

I also like participating in monthly savings challenges or committing to a “no-spend” month. These challenges help you reach a savings goal without affecting your lifestyle too heavily.

Savings challenge example: First Financial Bank suggests a six-month simple savings plan. I’ve personally done it, and it’s great. You start by saving $3 the first week, then add another $3 each week. By the 26th week, you’ll deposit $78 and have $1,053 saved without feeling like you had to sacrifice.

No-spend month challenge example: I’ve also done a no-spend month. It’s a bit more challenging but well worth it. During this month, you only spend on necessities such as rent, gas, and utilities. All other unnecessary spending is cut off, which means no dining out or non-essential shopping. It’s an intense saving tactic but effective.

9. Limit or avoid credit card use

If you’re drowning in debt, the last thing you want is to add more credit card debt. For the time being, set aside your credit cards. This may mean locking them in a safe or even giving them to a trusted relative.

You don’t have to close them. I recommend that you don’t, as that could increase your credit utilization and lower your credit score. Your goal is to pay off debt and not take on anything new.

10. Consider consolidating your debt

If you’re staring at the mountain of debt you’ve accumulated and wonder where to start, consider debt consolidation.

You have many options including:

• A balance transfer onto a 0% APR credit card
• Home equity loan or line of credit
• Personal loan
• Credit counseling

If you’re unsure where to start, compare the best balance transfer cards and personal loans to understand your options.

Looking to get out of debt today? See our Top Debt Consolidation Companies >>

FAQs

Bottom line

The 10 steps above should help you free up money to pay off your debt. The most crucial step, however, is what you do with that money. I suggest using the debt snowball or debt avalanche method.

I like the structure of these methods, which allow me to see my progress in paying off debt and ensure I reach my goals. The debt snowball method is for people who like “quick wins,” as it allows you to pay off your credit cards from the smallest to the largest balance. The debt avalanche method is for more patient people who don’t need “quick wins” and want to pay off the highest interest credit card first, as it orders your credit cards from highest to lowest APR.

But remember, first you need to get control of your budget, stop credit card spending, and potentially find ways to increase your income so you can use the debt payoff methods to get out of debt.