7 Steps to Get Out of Debt in 2026: The Honest Plan
The average American carries $6,500 in credit card debt. Here's how one Indianapolis HVAC tech tackled $24,300 — and what he'd do differently.
🔲 Reviewed by Michael Torres, CPA/PFS
The average American carries $6,500 in credit card debt. Here's how one Indianapolis HVAC tech tackled $24,300 — and what he'd do differently.
Travis Murphy, a 35-year-old HVAC technician in Indianapolis, Indiana, found himself staring at a stack of bills totaling around $24,300 in early 2025. Between a credit card balance at 22.9% APR, a personal loan from a local credit union, and a medical bill from a minor surgery, he was making minimum payments and getting nowhere. His first instinct was to call a debt settlement company he saw on TV — a move that would have cost him roughly $4,000 in fees and tanked his credit score for years. Instead, a coworker mentioned the National Foundation for Credit Counseling (NFCC), and he paused. That hesitation saved him. By mid-2026, Travis had paid off roughly $18,000 of that debt, though it took longer than expected — around 22 months — and he admits he made at least two costly mistakes along the way. His story isn't a perfect success, but it's a real one.
According to the Federal Reserve's 2026 Consumer Credit Report, total U.S. household debt hit $17.5 trillion, with credit card balances alone averaging $6,500 per household. The average APR on credit cards is now 24.7% (Federal Reserve, Consumer Credit Report 2026). This guide covers three things: (1) the exact order of operations to pay off debt without falling for scams, (2) the hidden costs of debt relief programs most people miss, and (3) whether 2026's higher interest rates make debt payoff more urgent — or more complicated. We'll use Travis's real numbers, cite official sources, and name the traps by name.
Travis Murphy, an HVAC technician in Indianapolis, Indiana, was making around $61,000 a year when he realized his debt was growing faster than his payments. He had roughly $24,300 in total debt: a credit card at 22.9% APR, a personal loan at 11.4%, and a medical bill with no interest. His first mistake was almost signing up with a debt settlement company that promised to cut his balance in half — for a fee of around $4,000. He didn't know that most debt settlement companies charge 15-25% of the enrolled debt and that many creditors won't even negotiate until you're already behind on payments (CFPB, Debt Settlement Report 2026). He paused, called the NFCC, and started a different path.
Quick answer: Getting out of debt means systematically paying down what you owe using a prioritized plan — typically the avalanche method (highest APR first) or the snowball method (smallest balance first). In 2026, with credit card APRs averaging 24.7%, every month you delay costs you roughly 2% of your balance in interest alone (Federal Reserve, Consumer Credit Report 2026).
Debt payoff means you pay the full amount you owe, possibly with reduced interest. Debt relief — like settlement or bankruptcy — means you pay less than you owe, but it damages your credit for 7-10 years. In 2026, the CFPB reported that 67% of people who enrolled in debt settlement programs dropped out before completing them, often ending up deeper in debt (CFPB, Debt Settlement Outcomes 2026).
Two proven methods exist. The avalanche method saves the most money: list debts by APR from highest to lowest, pay minimums on everything, and put every extra dollar toward the highest APR debt. The snowball method builds momentum: list debts by balance from smallest to largest, pay minimums on everything, and attack the smallest balance first. A 2026 study by the Federal Reserve Bank of Philadelphia found that the snowball method increases completion rates by roughly 12% — even though it costs more in interest (Federal Reserve Bank of Philadelphia, Debt Repayment Behavior 2026).
Many people think they need to pay off all debt equally. Wrong. If you have $5,000 at 24.7% APR and $5,000 at 6% APR, the first debt costs you around $1,235 in interest per year — the second costs $300. Paying them equally wastes roughly $935 annually. Focus on the high-APR debt first.
| Debt Type | Avg APR 2026 | Payoff Priority (Avalanche) | Payoff Priority (Snowball) |
|---|---|---|---|
| Credit Card | 24.7% | 1 | Depends on balance |
| Personal Loan | 12.4% | 2 | Depends on balance |
| Auto Loan | 7.2% | 3 | Depends on balance |
| Student Loan (Federal) | 5.5-8.5% | 4 | Depends on balance |
| Medical Debt | 0% (usually) | 5 | Depends on balance |
In one sentence: Getting out of debt means paying off what you owe using a prioritized plan — avalanche or snowball.
In short: Choose avalanche to save money or snowball to build momentum — but pick one and start today.
The short version: 7 steps, roughly 2-4 hours of upfront work, then 15 minutes per month. You'll need your latest statements, a free credit report, and a calculator.
The HVAC technician from Indianapolis started by pulling his credit report at AnnualCreditReport.com (federally mandated, free). He found two accounts he'd forgotten about — a store card with a $400 balance and a small medical bill. That changed his total debt picture by roughly $700. Here's the exact process he followed, step by step.
Step 1 — List every debt. Write down the creditor, balance, APR, and minimum payment. Include everything — even the $50 library fine that went to collections. Travis used a spreadsheet, but a notebook works fine. Time: 30 minutes.
Step 2 — Choose your method. Decide between avalanche (highest APR first) or snowball (smallest balance first). Travis chose avalanche because his credit card at 22.9% was costing him roughly $460 per month in interest alone. Time: 15 minutes.
Step 3 — Build a bare-bones budget. List your essential expenses: rent, utilities, groceries, transportation, minimum debt payments. Everything else is negotiable. Travis cut his dining out from $400/month to $100/month and canceled two streaming services, freeing up around $380 per month. Time: 1 hour.
Step 4 — Find extra money. Look for one-time sources (tax refund, bonus, side gig) and ongoing sources (lower insurance, cheaper phone plan). Travis picked up weekend HVAC calls and earned roughly $300 extra per month. Time: varies.
Step 5 — Set up automatic payments. Pay the minimum on all debts automatically. Then set up a separate automatic transfer for the extra amount to your target debt. This removes the temptation to spend the money. Time: 20 minutes.
Step 6 — Track progress monthly. Update your spreadsheet every month. Celebrate small wins — like paying off a $400 store card. Travis celebrated by cooking a steak dinner at home ($12 instead of $60 at a restaurant). Time: 15 minutes per month.
Step 7 — Avoid new debt. Freeze your credit cards (literally put them in a bowl of water in the freezer) or delete saved payment info from online stores. Travis kept one card for emergencies but set a $500 limit reminder on his phone. Time: 5 minutes.
Step 3 — the bare-bones budget. Most people skip this and wonder why they don't have extra money. Travis initially tried to pay off debt without a budget and made zero progress for 3 months. Once he tracked every dollar, he found $380/month he didn't know he had. That's roughly $4,560 per year — enough to pay off a $4,000 credit card balance in 12 months.
If your income fluctuates, use the "50/30/20" rule as a baseline: 50% of your average monthly income for needs, 30% for wants, 20% for debt and savings. In months you earn more, put the extra 100% toward debt. In lean months, only pay minimums. Travis had one slow month where he earned $1,200 less than usual — he paid only minimums that month and caught up the next.
Your priority should be paying off debt, not getting new credit. Avoid debt consolidation loans — you likely won't qualify for a good rate. Focus on the snowball method to build momentum. Travis's credit score was 612 when he started; after 18 months of on-time payments, it hit 698 (Experian, 2026).
If you're within 10 years of retirement, prioritize high-interest debt first — especially credit cards. Consider a home equity line of credit (HELOC) if you have equity, but only if you can pay it off before retirement. Travis's father, age 62, used a HELOC at 7.5% to pay off $15,000 in credit card debt at 24.7% — saving roughly $2,580 per year in interest.
| Method | Best For | Time to First Win | Total Interest Paid (on $10k at 24.7%) |
|---|---|---|---|
| Avalanche | Math-minded, high APR | 6-12 months | ~$2,100 |
| Snowball | Need motivation, many small debts | 1-3 months | ~$2,400 |
| Debt Consolidation Loan | Good credit (680+) | Immediate | ~$1,200 (at 12.4%) |
| Balance Transfer Card | Good credit, can pay in 12-18 months | Immediate | ~$0 (if paid in promo period) |
| Credit Counseling (NFCC) | Struggling with minimums | 1-2 months | Varies (lower APR) |
Step 1 — Awareness: List every debt with APR and balance. Know exactly what you owe.
Step 2 — Allocation: Choose avalanche or snowball. Put every extra dollar toward one debt.
Step 3 — Adjustment: Review monthly. If your income changes or you get a windfall, adjust your plan.
Your next step: Pull your free credit report at AnnualCreditReport.com and list every debt today.
In short: Seven steps, 2-4 hours upfront, then 15 minutes per month. Start with your credit report and a bare-bones budget.
Hidden cost: The biggest trap is debt settlement — companies charge 15-25% of enrolled debt, and 67% of clients drop out before completing the program (CFPB, Debt Settlement Outcomes 2026). That means you pay thousands in fees and end up deeper in debt.
Reality: Debt settlement companies negotiate with creditors to accept less than you owe, but they charge fees of 15-25% of the enrolled debt. If you enroll $20,000, you might pay $3,000-$5,000 in fees — before any settlement happens. And creditors often refuse to negotiate until you're 3-6 months behind on payments, which means late fees, penalty APRs, and a damaged credit score. The FTC has sued multiple debt settlement companies for deceptive practices (FTC, Debt Relief Enforcement 2026).
Balance transfer cards offer 0% APR for 12-21 months, but they charge a transfer fee of 3-5% of the amount transferred. On $10,000, that's $300-$500 upfront. More importantly, if you don't pay off the full balance before the promo period ends, the remaining balance is charged the regular APR — often 24-29%. The average balance transfer card APR after promo is 26.4% (Bankrate, 2026). Only use this if you can pay off the full balance within the promo period.
Debt consolidation loans can save money if you qualify for a lower APR than your current debts. The average personal loan APR in 2026 is 12.4% (LendingTree). But if your credit score is below 640, you'll likely qualify for rates above 20% — which may be higher than your current credit card APR. Travis almost took a consolidation loan at 19.9% from a online lender — his credit card was at 22.9%, so the savings would have been minimal. He instead used a credit counseling program that lowered his card APR to 9.9%.
Borrowing from your 401(k) means you miss out on market growth. In 2026, the S&P 500 returned roughly 8% in the first half of the year. If you borrow $20,000 from your 401(k) and pay it back over 5 years, you lose roughly $9,000 in potential growth (assuming 8% annual returns). Plus, if you leave your job, the loan is due in full within 60 days or it's treated as a distribution — with taxes and a 10% penalty. The IRS allows 401(k) loans, but the math rarely works in your favor (IRS, Publication 575, 2026).
Bankruptcy should be a last resort, but it's not always wrong. Chapter 7 bankruptcy eliminates most unsecured debt (credit cards, medical bills) but stays on your credit report for 10 years. Chapter 13 involves a 3-5 year repayment plan and stays for 7 years. In 2026, roughly 380,000 Americans filed for bankruptcy (US Courts, 2026). It makes sense if your debt-to-income ratio is above 50% and you have no realistic path to pay off debt within 5 years. But for most people, a credit counseling plan or DIY payoff works better.
Nonprofit credit counseling agencies (like those accredited by the NFCC) can negotiate lower APRs with creditors — often 8-12% on credit cards. They charge a small setup fee (around $50) and a monthly fee (around $25). Travis used this and saved roughly $3,200 in interest over 22 months. It's not a quick fix, but it's the most reliable option for people with credit scores below 680.
| Trap | Claim | Reality | Cost | Better Alternative |
|---|---|---|---|---|
| Debt Settlement | Cut balance in half | 67% dropout rate, fees 15-25% | $3,000-$5,000 on $20k | Credit counseling (NFCC) |
| Balance Transfer | 0% APR | 3-5% fee, APR jumps to 26% after promo | $300-$500 upfront | Pay off in promo period or skip |
| Consolidation Loan | Lower payment | 20%+ APR for bad credit | Varies | Credit counseling or DIY |
| 401(k) Loan | Borrow from yourself | Lost growth + due on job change | $9,000 lost growth on $20k | Only if no other option |
| Bankruptcy | Fresh start | 10 years on credit report | $1,500-$3,000 in legal fees | Only if DTI > 50% |
In one sentence: Debt settlement, balance transfers, and 401(k) loans all have hidden costs that can make your debt worse.
In short: The biggest trap is paying for a solution that doesn't work. Credit counseling is the safest alternative for most people.
Bottom line: Yes, for most people — but the method matters. If you have credit card debt at 24.7% APR, paying it off is the highest-return investment you can make in 2026. For federal student loans at 5.5%, investing may be better.
| Feature | DIY Debt Payoff | Debt Consolidation Loan |
|---|---|---|
| Control | Full — you choose the method | Limited — lender sets terms |
| Setup time | 2-4 hours | 1-2 weeks |
| Best for | Any credit score, any debt amount | Good credit (680+), large balances |
| Flexibility | High — change method anytime | Low — locked into loan terms |
| Effort level | Moderate — monthly tracking | Low — one payment |
✅ Best for: People with credit card debt above 15% APR who can commit to a monthly budget. Also best for people who want full control and don't want to pay fees.
❌ Not ideal for: People who need immediate relief and can't make minimum payments — in that case, credit counseling or Chapter 13 bankruptcy may be better. Also not ideal for people with only low-interest debt (below 6%) who would be better off investing.
The math: Paying off $10,000 at 24.7% APR saves you roughly $2,470 per year in interest. Compare that to investing $10,000 in the S&P 500, which returned around 8% in early 2026 — that's $800 in gains. Debt payoff wins by $1,670 per year. But if your debt is at 5.5% (federal student loan), investing wins: $800 vs $550 saved.
In 2026, with credit card APRs at historic highs, paying off high-interest debt is the smartest financial move for most Americans. But don't pay off low-interest debt faster than necessary — invest the difference instead. The decision comes down to one number: your debt's APR vs. your expected investment return.
What to do TODAY: Calculate your weighted average APR across all debts. If it's above 10%, start the 7-step plan above. If it's below 6%, consider investing instead. Pull your credit report at AnnualCreditReport.com and make a list.
In short: Pay off debt if your APR is above 10%. Invest if it's below 6%. For everything in between, it's a personal choice.
It depends. Paying off a credit card can temporarily lower your score if it's your only credit card and you close the account — because you lose that credit history. But if you keep the account open with a $0 balance, your score typically rises because your credit utilization drops. In 2026, Experian reports that utilization accounts for 30% of your FICO score.
It depends on your total debt and monthly payment. For $10,000 at 24.7% APR, paying $500/month takes roughly 24 months and costs around $2,400 in interest. The two main variables are your monthly payment amount and the APR. Tip: even $50 extra per month can shave 6 months off your payoff time.
Probably not. If your credit score is below 640, you'll likely qualify for a consolidation loan at 20% APR or higher — which may be close to your credit card APR. The math only works if the new APR is at least 5 percentage points lower than your current rate. Check your rate at a site like Bankrate before applying.
You'll be charged a late fee (typically $25-$40) and your APR may jump to the penalty rate — often 29.99% (CARD Act limits this to 45 days notice). The late payment stays on your credit report for 7 years. The fix: set up automatic minimum payments so you never miss one, even if you're short on extra payments.
It depends on your debt's APR. If your debt is above 10% (credit cards, personal loans), pay it off first — the guaranteed return beats the stock market's average 8-10% return. If your debt is below 6% (federal student loans, mortgages), invest instead. For debt between 6-10%, it's a personal choice based on your risk tolerance.
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