How to Get out of Debt and Stay out of Debt [2023 Edition]

Table of Contents

Did you know that, according to the fool.com’s post here, the average household debt in America is over $96,000 dollars?!

You know, I’ve listed quite a few statistics and figures in the intro paragraphs of all of my posts, but that figure actually really shocked me. Am I surprised? No. Shocked? Absolutely.

Because borrowing money has gotten out of control in recent years. There’s less money management and more credit cards, student loans, personal loans, car payments, and financed…well, everything. You can even “buy now, pay later” on literally any item you choose.

Debt is a scam. And unfortunately, it’s also a choice. But you can choose differently. You can choose to get out of debt and stay out of debt. But only YOU can make that choice for yourself.

Today, I’m going to show you why you need to get out of debt and how to get out of debt. So that you can fix the mistakes, get out of debt, and start building wealth for yourself. Take responsibility for your personal finance situation and start paving a different path for yourself. A path you can be proud of.

Alright…are you ready? Let’s go!

What is debt in personal finance?

To put it simply, debt in your personal finances is money that you owe to someone else.

Obviously, that is a bit simplistic. But you get the idea. You owe money and you need to pay it back. Whether it’s money owed to family or friends, a car company, a bank, or on a credit card, YOU owe money to someone and it’s YOUR responsibility to get that debt paid off.

I’ll show you how to do that in the paragraphs below ⬇️.

Why you need to get out of debt

1. debt is robbing your joy: even if you have a bunch of nice stuff, debt isn’t allowing you to fully enjoy the things you own. You might love that new car, but the cost of those steep payments will eventually weigh you down. And you might think your huge, beautiful house is awesome. But you’ve probably got a huge chunk of income tied up in it every month and it will inevitably stress your finances. In order to actually enjoy the things you own, you need to buy things in cash or finance mortgages appropriately so that you can get them paid off. If you do that, you’ll have real joy, without needing to use debt.

2. debt won’t allow you to build wealth: debt robs and steals and takes everything away from you, leaving you with little money left over for saving and investing. That’s disappointing, because it really doesn’t take much money to build wealth. Most people, though, aren’t thinking about tomorrow. They only think about themselves and what they “need” today. If that’s your mindset, you’ll never build real wealth.

3. debt is stealing your future: continuing to use debt isn’t just going to keep you from building wealth, but also from having a decent future and retiring with dignity. Be careful, or you’ll have nothing when you get to retirement age.

For more, check out this post – “20 Reasons Why Debt is Bad: The 10,000+ Word Complete Guide!”

3 Things you need to get out of debt

1. Motivation: you’re going to need some motivation to get out of debt. I’d encourage you to continue finding great content on my site, looking for other friends and family around you trying to get out of debt, and watching content online and on YouTube to stay motivated. I personally listened to and watched the Ramsey show online, as well as other motivational YouTube channels when I was getting out of debt.

2. Your “I’VE HAD IT!” moment: back in March of 2021, right before the Covid Pandemic hit, I reached my breaking point. I had my, “I’VE HAD IT!” moment. I worked so hard to get rid of my student loans and do well with money, but eventually landed back in debt and living paycheck to paycheck. I hit my breaking point and swore that once I got out of debt this time, I’ll never go back.

3. A plan: once you hit your breaking point, and start finding the motivation to get out of debt, you need a solid plan to get out of debt. Well, we’ve got you covered. Here’s how to get out of debt and stay out of debt ⬇️.

How to get out of debt (and stay out of debt)

Step 1 – Have a BIG reason WHY

Having a BIG reason WHY you’re doing anything financially is insanely important. I mean, WHY are you trying to get out of debt? What is your WHY?

I want you to answer this question right now. Write down what your BIG reason WHY is.

You have to have one. Because if you don’t, you’ll fall back into bad habits and soon be back in debt. That’s exactly what happened to me.

When I first got out of debt, I wanted to knock out my student loans and all other debt just because. I got out of debt just to get out debt. Eventually, I fell back into debt again. I soon realized that I needed a bigger reason why I was trying to get out of debt. I needed something HUGE.

Here’s my BIG reason WHY: I’m sick of debt, tired of being broke and having nothing, sick of not being able to afford anything, sick of a negative net worth, my wife and I want to travel one day, I want to help my son go to college without loans, and my wife and I want to be a millionaires.

My why is deep. Because I’m not going back into debt. No chance in hell. So what do you want? Find your BIG reason WHY and you’ll be headed on to step 2.

Step 2 – Stop borrowing money

In step 2, you’re going to stop borrowing money completely. This is one of the most important steps of your debt free journey. Because if you don’t stop borrowing, there’s really no point in trying to get your debt paid off. You have to stop borrowing and going back into debt so that you can actually make progress toward getting out of debt.

How do you do this? You just stop borrowing money!

Right now, I want you to make a commitment to stop borrowing money completely.

Stop any borrowing, financing, or credit card use immediately. Then, you need to start making different decisions with your money. Only buy things if you can afford them. Pay cash for stuff (or your debit card). All of this is going to require a different mindset toward debt. I want you to take debt off the table completely. Once you do that, you’ll become more creative in how you pay or think about buying stuff.

No more loans, no more borrowing from friends, no more credit cards, no more financing, and no more monthly payments. That’s it. You’re done with step 2!

Step 3 – Financial goals

Now that you’ve found your BIG reason WHY and you’ve stopped borrowing money, it’s time to look at your financial goals. These are similar to your reason why, but will highlight financial goals that you aim to achieve over a certain period of time.

And you need money goals. Because without goals, what are you doing any of this for? Are you working your butt of everyday just to get paid and then blow it all on impulse purchases and debt payments? No, you’re not working hard just to be broke at the end of the day. So you’re going to start setting some financial goals for yourself.

Before you get started, hear me out: I want you to write out these goals so you can hold yourself accountable. They need to be clear, written, and specific goals.

Let’s look at the different types of goals:

Short-term: these are goals that you should be able to achieve in a really short period of time, such as a day, a week, a month, on up to about 36 months (3 years).

“I would like to successfully complete a 30-day no-spend challenge.”

“I would like to increase my income from $30,000 dollars to $50,000 dollars in the next 12 months.”

“I’d like to get all of my debt paid off in about 24 months”

Medium-term: these goals take a bit longer to achieve and can be completed anywhere between 3 years and 10 years. It’s fairly tough to complete these goals so be ready.

“I want to have a $100,000 dollar per year income in the next 5 years.”

“I would like to pay off my home in the next 8 years.”

Long-term: long-term goals are very difficult to achieve and take a long period of time to complete them – usually longer than 10 years or more.

“I want to be a net-worth millionaire in the next 15 years (my personal goal)”

“I want to buy a beach house in cash by the time I retire in 25 years.”

Legacy: these goals are the ones that you wish to achieve upon changing your family tree or leaving a legacy behind as you pass away. These are often goals that most people don’t think about, because they’re often too far away or may be goals that you hope to achieve upon passing away and leaving money behind. But these kind of goals can be the most fun goals to try and achieve:

“I want to leave my son a $1 million dollar or more inheritance when I pass away.”

“Help my child build a million dollar net worth by 30 years old.”

“Create college funds for grandchildren or great-grandchildren to continue changing the family legacy.”

“Create a perpetual debt-free college scholarship that pays out one single $2,000 dollar scholarship every year for the next 50-100 years.”

Now write out your goals right now. Spend some time thinking and writing. Make sure you write down all 4 types of goals

You see, goals aren’t that difficult to come up with. I’m sure you probably didn’t have too much trouble thinking of a few. This can actually be kind of fun – thinking about what you want in the immediate future and dreaming about what you want for yourself when you get older.

Lastly, the beautiful thing about goals is that, even if you don’t achieve them exactly how and when you wanted to, if you just keep working toward them, you’ll still be that much closer to reaching those goals in the end. And you’ll be that much farther along than if you just never started making progress toward them. That progress can motivate you to keep going until you finally hit whatever goals you set.

As the great speaker Zig Ziglar once said, “if you aim at nothing, you’ll hit it every time.” So set some goals and get after it!

For more information on goals, check out this post – “How to Make More Realistic Financial Goals in 2022.”

Step 4 – Create a budget

In step 4, it’s time to get rollin’ and start taking intense action with your plan to get out of debt. It’s time to create and start your budget.

Now I know you might have some hesitation when it comes to budgeting. You might have heard negative things about budgeting like, “it’s too restricting,” “not something that you should be doing if you want a good life,” or “it doesn’t allow you to spend any money.” ALL OF THOSE ARE FALSE. Budgeting is actually pretty awesome. Let me tell you why:

Budgeting allows you to control your money so that it doesn’t control you. If you’re not using a budget, you’re simply spending your money and not knowing where it all goes. You have to track your money to make sure it’s all going to the right place and so you can keep from spending too much.

Budgeting helps to curb overspending. If you track your expenses, you’ll start noticing when you’re spending too much money in a certain category like fast food, clothing, and entertainment.

Budgeting is permission to spend. A budget allows you to write down what you’re allowed to spend on fun, entertainment, coffee, or whatever you want. A budget only shows you your income limit and how you can live below your means (or live on less than you make). Some find that restricting but you should find that freeing. You’re allowed to spend, but just keep it under what you actually earn every month.

When getting out of debt, though, you need to cut down spending as much as possible! So let’s create that budget!

7 steps to building your zero-based budget:

1. Find your income: I want you to find your yearly income so that you know it and your monthly income AFTER TAXES for your budget

2. Find your expenses: you can do this two ways. First, get your bank statement from the previous month. Literally take a calculator and add up all of your expenses. It might take you a bit but this is important. Second, you can track all expenses over the next 30 days. Then add it all up.

Once you find your total expenses, subtract them from your income. Your expenses need to be LESS THAN your income. If your expenses are less than your income, that’s good! You’re “living below your means” as you should. You’ll be able to continue on to step 5.

However, if your expenses are more than your income, you’re overspending and “living above your means.” That’s incredibly dangerous and needs to be stopped immediately. Implement your budget and start cutting down expenses right away.

Check out this post for more – “101 Ways of Creatively Cutting Expenses to Save a Ton of Money.”

3. Figure out which platform to use: for this, I want you to check out either Mint.com, EveryDollar.com, or the excel spreadsheet that I use for my personal budget (check that out here – this is an excel document download).

4. Start creating your budget: write down your income and expenses, then set up your budget categories and how much you’re going to spend on each category and each item in each category. Just do the best you can with adding in everything to your budget. You won’t be perfect on day 1, but the idea is to continue working on it until you get the hang of budgeting.

If you have extra money after subtracting expenses from income, give those extra dollars an assignment in your budget – whether going to pay debt, save, or invest. Just make sure every dollar is assigned…because you want every dollar you have going to work for you (and not just getting wasted).

5. Complete your budget: continue tweaking until you’ve completed your budget…for now. Once the month starts, you’ll start tracking expenses.

6. Determine how often you’ll update it: once a month, once every two weeks, once every week, 2-3 times per week and every day are your options. I personally update my budget almost every day. That might be extreme, but hey, I’ve got extreme money goals.

7. Continue to budget monthly: keep working on your budget throughout the month. Once you’re done every month, file it away and make a new budget for next month. After doing this a few times, you’ll get better and better at budgeting. It’s tough at first, but after some practice, you’ll be a budget pro in no time.

For more, check out this post – “The Complete 7-Step Guide for Building a Zero-Based Budget.”

Again, I want you to just do the budget. It doesn’t have to be perfect. But you do have to have a budget. Because you need to know where your money is going. Once your budget is done, move on to step 5 in this get out of debt plan.

Step 5 – $1,000 dollar starter emergency fund

Once your budget is good to go, it’s time to move in to the emergency fund. Now, in this step, you’re only going to be setting up a $1,000 dollar starter emergency fund. Because before you start the journey to get out of debt, you have to have a $1,000 dollar starter emergency fund ready to protect you from small emergencies.

As for timeframe, this starter emergency fund needs to be done in 1 month. Do this as fast as possible. Work extra hours, get another job, have a yard sale, or sell stuff online to build up this fund quick. You need to have a little bit of money to protect you from a small emergency. So get this done as soon as possible.

Before we move on, I just want to address the complaint that most people have: “well, $1,000 dollars isn’t enough for some emergencies. You should have more money in your emergency fund!” Yes, that’s absolutely right. But this starter emergency fund isn’t meant to be a fully-funded 3-6 month emergency fund. Just a small buffer from emergencies while you pay off debt. After you pay off debt, you’ll build your fully-funded 3-6 month emergency fund.

Can you increase it while paying off debt? NO. This starter emergency is meant to be uncomfortable so that you get your debt paid as fast as possible. Once you do that, you’ll start building up the fully-funded emergency fund.

For more, check out the following posts:

“The 10-Step Quick Guide: How Can I Save $1000 dollars in 30 Days?“

“How to Create a $1,000 Dollar Starter Emergency Fund in 1 month!”

Step 6 – Get out of debt (as fast as possible)

In step 6, we’re going to start crushing debt. And I want you to crush it as fast as possible. I want you to look at this step as an all-out, high-intensity sprint to the finish line. Because debt is holding you down. So let’s change that and knock your debt out fast.

Because I hate debt. And so should you. It robs you of your hard-earned money and keeps you from building true wealth.

I want you to approach your debt with Gazelle Intensity. If you don’t know what that is, here’s the rundown: “Gazelle Intense is the term Dave Ramsey came up with to describe the speed and intensity you should have when paying off debt,” according to his website. Check out their post on it here.

The first thing you’re going to do is take a look at ALL of your debts (except for your house – that will be later in the plan). Start out by listing all debts smallest to largest and totaling it all up. It might shock you a little bit. But it’s a good start.

Now that you know your total debt, I want you to set a realistic goal for your debt payoff. Think about how much extra money you have left over to pay on debt – let’s say $500 dollars per month. If you have $10,000 dollars in debt, you should be able to pay that off in 20 months ($10,000 divided by $500 = 20 or 20 months). Now set a goal. For this example, I would set a goal of 15-18 months and then try to beat that goal.

If you’re currently investing into anything, I want you to pause your investments (temporarily). It’s okay to do this for a short period of time so that you can get your debt paid off. You’ve got to maximize the money you’re bringing in so that you can get everything paid off as fast as possible.

Once you’ve maximized income, start attacking the smallest debt with a vengeance. Then do anything and everything you can to pay off debts:

Work overtime: most jobs allow you to work at least a few extra hours. If they allow it, why not?
Take extra jobs: find a part-time job that can pay you $12-15 dollars per hour.
Side hustle: mowing lawns, cleaning houses, and building websites (what I do for a side hustle) can make you extra money.
Sell stuff: whether you have a yard sale or you can sell stuff online, you can make a little bit of extra cash this way.
Increase income: find any way you can to increase your income. Check out this post for more ways – “27 Ways to Make Money While in Debt.”
Decrease expenses: find every way you can to decrease expenses.
“47 ways to pay off debt” post: this post can also help – “47 Creative Ways to Pay Off Debt.”

Once you pay off the smallest debt, take ALL the money that you were paying on it and add it to the money you were paying on the next biggest debt. Then the next loan and then the next. This is called the debt snowball. Your snowball gets bigger and bigger until you pay off the final loan. So work your way up the debts list from smallest to largest until you get to the final biggest debt and pay that off. After all debt is paid, you’re left with a large pile of money at the end and zero consumer debt.

From here on out, between the extra money in your snowball and your budget, you can continue cash flowing everything (paying cash for what you buy). This is easy to do once you’re

completely out of all consumer debt. If you’ve gotten this far, congratulations!

Step 7 – 3-6 month fully funded emergency fund

You’ve gotten completely out of debt, so now it’s time to start stacking cash and building up your 3-6 month fully-funded emergency fund. You can do all of the previous steps, but if you don’t keep going and complete this one, you’re setting yourself up for disaster. So this next step is EXTREMELY important.

You need to have a fully-funded emergency fund of 3-6 months of all required and necessary expenses (how much it costs for bills, groceries, and other NEEDED expenses times 3 months, 4 months, 5 months, or 6 months). How much you save is up to you.

So now you need to decide on how much is going to be in your emergency fund:

Stable job: if you have two stable, state employment jobs, and another full-time income coming in from a side hustle (my personal household situation), you probably only need 3 months of income saved up. That’s what we have.

Less stable or self employed: if you and your spouse are both self-employed and your income varies every single month, you may want to have 6 months of income saved up.

Quick note: get this done as fast as possible. Same intensity level as steps 5 and 6. This needs to be done in 6 months or less.

Having your fully-funded emergency fund in order will help you stay out of debt and have the money to handle about 99% percent of all emergencies that pop up.

Step 8 – Invest 15% percent & start kids college fund

Step 8 is to make sure you’re investing 15% percent of your gross income into retirements and to get your children set up for college 529 plans.

Invest 15% percent

Once you’re out of debt, with a fully-funded emergency fund in place, I want you to set up your investments at 15% of your gross income. Because anyone can become wealthy on 15% percent of their income.

For this, I recommend either your employer 401(k) with a match, employer Roth 401(k), or Roth IRA with good growth stock mutual funds that have long track record of success.

A quick way to remember these options: “Match beats Roth beats Traditional.”

Starting kids college fund

This is fairly simple. You can either open up a Coverdell Education Savings Account (ESA) or a 529 College Savings Plan using mutual funds for your children’s college expenses.

If this doesn’t apply to you, move on to step 9. Only open up a college savings account if you currently have a child.

The amount that you’ll put in depends on how old your child is, when they’re going to school, and how much you can afford to invest. I highly recommend that you at least do something. Set an amount and stick to it every month.

For my son, we invest $100 dollars per month and plan to increase it that over time. He’s only 3 as of the writing of this post, so that’s perfectly adequate. Over time, this account will grow and we hope to have around $80,000-100,000 dollars or more in this account by the time he turns 18.

Step 9 – pay extra on mortgage and get mortgage paid off

You’ve made it to step 9 so great job! If you continue living like this, you can easily build wealth and become a millionaire in just a few years after you’ve completed step 10 of this plan. But in order to get closer to that millionaire goal, you have to tackle your mortgage.

Now before you say anything else, you might get some haters that ask you why you’re paying off your home. They’ll give you all kinds of BS reasons why you should keep it. But it’s stupidity and will keep you broke and in debt. So don’t listen to stupid people. Get your house paid and take away the risk.

If you want to stay out of debt forever, it’s important to get your house paid off. This will free up A LOT of money on top of the money that you aren’t putting towards other debt anymore. You’ll be able to save, invest, spend, and give in ways you never thought possible. But first, you have to START.

As long as all other consumer debt is paid, and you have a fully-funded 3-6 month emergency fund in place, start paying extra on mortgage if you can. If you can get a decent interest rate, you can also try refinancing from a 30-year mortgage to a 15-year mortgage.

We pay an extra mortgage payment on our house every single month ($1200 dollars) and we plan to have our 15-year mortgage paid off in about 5 years! Our target payoff date is August 2026 – we started paying extra in August of 2021. If you’d like to see the progress we’ve made on our home, check out this page here on my site.

Quick note: only pay extra on your home mortgage once you’re debt free, with a fully-funded emergency fund, you’re investing 15% percent of your income into retirement, and you’ve started kids college investing. If that’s you, keep going.

At this point, you’re going to pay extra on the house, but once you’re debt free, you can use a little bit of money to spend and enjoy. Once you’re out of debt, you simply need to continue being intentional with money (instead of being gazelle intense with money).

Step 10 – Build wealth, give, and have fun!

If you’ve made it step 10, CONGRATULATIONS! At this step, you have absolutely ZERO DEBT and your house is completely paid off!

We’re still working on step 9 as of the writing of this post and we can’t wait to hit this milestone!

At step 10, you should be completely out of debt, with a fully-funded 3-6 month emergency fund, be investing 15% percent into retirement, investing in kids college, have your house completely paid for, and be very good at managing your money (because you’ve been doing it for so long)!

After your home is paid, you need to max out investments, use some of your money for charity and giving, and use some to have fun. Step 10 is to build wealth, give, and have fun.

But in order to keep living your best life, and stay out of debt forever, you need to do the following things:

Continue investing. Max out your retirement account if possible.
Continue budgeting.
Continue living without debt.
Continue living below your means.
Continue being intentional with your money.
Save up for everything.
Never borrow money again.
Build wealth.
Give generously.
Spend and enjoy some of your money and…
Swear that you will NEVER EVER go back into debt.

If you do every step as I’ve outlined above, you can be extremely happy and extremely wealthy. But you have to work for it.

The final say

All of the steps I’ve outlined above just straight up WORK. I’ve personally done these steps and my wife and I are on track to pay off our home and become millionaires at a very young age (my goal is by 40)! But we’ve worked our butts off for years to make this happen and our journey isn’t over. So if you want to get out of debt, stay out of debt, and build a great life for yourself, you’re gonna’ have to put in the work starting today. Don’t wait. Get started crushing your debt as soon as possible. Because I know you can do it.