How to Get Out of Debt

In a previous article, I explained why investing can be a smart use of the money you have left after covering your living costs. Investing is an important part of building long-term financial freedom.

However, high-interest debt changes the situation. Before focusing heavily on investing, it is often smarter to pay down expensive debt first. Interest on credit cards, personal loans, or similar borrowing can grow quickly and make it harder to build wealth over time.

The first step is to create a clear overview of your finances. Put all your debts into an Excel spreadsheet or budgeting tool. Include:

• The total amount you still owe
• The interest rate for each debt
• The minimum monthly payment
• The repayment period
• The extra amount you can realistically put toward debt each month

Once you know where you stand, there are two popular ways to pay off debt.

1. The Debt Snowball Method

With the debt snowball method, you start by paying off the smallest debt first. You continue making the minimum payments on all other debts, while putting every extra euro toward the smallest balance.

Once that debt is paid off, you use the money you were paying toward it to attack the next-smallest debt.

This approach gives you quick wins. Seeing debts disappear from your list can help you stay motivated and build confidence along the way.

2. The Debt Avalanche Method

With the debt avalanche method, you start by paying off the debt with the highest interest rate first. Again, you keep making the minimum payments on every debt, but put your extra money toward the most expensive one.

This is usually the most efficient method financially because you reduce the total interest you pay. However, it can take longer before you fully pay off your first debt, especially if the highest-interest balance is also large.

Which Method Is Best?

Neither method is automatically right for everyone.

The debt snowball method can be a great choice if you need motivation and want to see progress quickly. The debt avalanche method may be better if your priority is paying the least possible interest.

What matters most is choosing a strategy that you can follow consistently. Make a realistic plan, avoid taking on new high-interest debt where possible, and keep putting extra money toward your repayment goal. Every payment brings you closer to having more freedom with your money.

Next step after paying your debt? Emergency fund!