How to get out of debt? Step by step

  • Article by: CHRIS FARRELL , Chris Farrell
  • Updated: March 13, 2010 - 7:43 PM

A former boss of mine once quipped that the real definition of personal finance was getting out of credit-card debt.

Sad to say, for many folks he's right. Consumers are reducing their exposure to credit-card debt, which has been declining for the past 16 months. Much of the drop reflects household defaults during the Great Recession. Still, many folks are struggling to pay off their consumer loans.

I wish there was a magic formula for eliminating credit-card and other debts. There isn't. That said, there's no reason for despair. There are time-tested solutions that work. People reduce and eliminate their debt burdens all the time. It requires trade-offs and patience.

And, I would add, checking out the e-book "Reduce Debt, Reduce Stress'' by Gerri Detweiler, Nancy Castelman and Marc Eisenson. You can look at it on their website These veterans of the getting-out-of-consumer-debt movement really know their stuff. What I like about the book is its practical suggestions for escaping debt, from solid tips on how to steadily nick away at credit-card bills to tackling a home equity loan. I've learned a lot from them.

For instance, here's a simple tip for handling several credit cards with different balances and interest rates. Let's say you've borrowed a total of $10,000 and it's composed of $5,000 on a card with a 21 percent interest rate, $3,000 at 17 percent and $2,000 at 14 percent. The basic idea behind a roll-up is that you pay the minimum on all your debts except the highest-rate one. That's where you target the extra savings you're eking out with a budget. Eventually that debt is gone. You attack the next-highest-rate debt, paying the minimum on the others, until the all the loans are paid off. It's a strategy that builds momentum over time.

By the way, mathematics dictates that it's usually best to attack your highest-interest-rate debt first. It's your most expensive borrowing. However, many of us need a psychological boost when we're trying to stick to a debt repayment plan. We'd like some concrete evidence that that our efforts are paying off. In that case, attack your smallest bill first and eliminate it as fast as possible. Congratulations. Now, go after the next-smallest debt.

The author's goal is to get you out of debt stress in a one- to five-year time frame. The steps are familiar: Figure out how much you really owe; make debt reduction a priority; create a budget; and develop a plan for which debts to tackle first, second, third, and so on. What's different about this book is the level of practical detail and clear examples. And if it isn't realistic for you to get out of debt in five years, they lay out your options, including bankruptcy.

"Reduce Debt, Reduce Stress" is an e-book for the times and for anyone eager for a fresh financial start.

Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to

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