How to Get Out of Debt: A Practical 5-Step Method

Getting out of debt requires three things: knowing exactly how much you owe, stopping the creation of new debt, and choosing a repayment order. Without the first, any plan is guesswork. Without the second, your efforts are undone. Without the third, your money gets scattered and the most expensive interest rates continue to compound.

1. Make a Complete Inventory

List every debt with the creditor, outstanding balance, monthly interest rate, installment amount, and number of remaining installments. Registrato, a free Central Bank of Brazil system, shows loans and financing registered under your CPF (taxpayer ID) and helps ensure nothing is missed. Also check Serasa, Boa Vista, and SPC to identify any delinquent debt listings.

2. Stop the Growth

Suspend the use of any credit card carrying a revolving balance, steer clear of overdraft lines, and do not take on new installment plans until your strategy is underway. Since 2024, Law 14,690/2023 caps interest and finance charges on revolving credit and credit card installment plans at 100% of the original debt amount, but it still remains one of the most expensive forms of credit on the market.

3. Choose the Order: Avalanche or Snowball

In the avalanche method, you pay the minimum on all debts and direct all extra money toward the one with the highest interest rate. It is mathematically the cheapest route. In the snowball method, the extra money goes to the smallest debt, regardless of the interest rate. Paying off debts quickly builds a sense of progress and helps those who struggle to stay motivated.

Example: Debt A of R$ 1,200 at 3% per month, Debt B of R$ 6,000 at 12% per month on revolving credit. The avalanche tackles B first, saving on interest. The snowball pays off A in a few months and then redirects everything toward B. If you know you would give up without seeing fast results, the snowball may work better in practice.

4. Swap Expensive Debt for Inexpensive Debt

Payroll-deductible loans (crédito consignado), collateralized loans, and credit portability typically carry lower interest rates than credit cards and overdraft facilities. The swap is only worthwhile if you compare the CET (Custo Efetivo Total, Brazil's total effective cost metric that includes fees and insurance) and ensure the old debt is genuinely closed out. Refinancing only to run up credit cards again doubles the problem.

5. Negotiate with Information

Banks and financial institutions often offer substantial discounts on older debts, particularly during debt-renegotiation drives and on platforms such as Serasa Limpa Nome and Consumidor.gov.br. Before accepting, confirm that the installment comfortably fits your budget. A defaulted settlement agreement usually forfeits the negotiated discounts.

Those facing severe distress can invoke the Overindebtedness Law (Law 14,181/2021), which allows you to request a collective conciliation process with all creditors at once, safeguarding an existential minimum for basic living expenses. Consumer protection agencies (Procons) and Public Defender's Offices provide free guidance.

6. Build a Small Cushion

Even during repayment, set aside a modest sum, such as R$ 500 or R$ 1,000, for unexpected events. Without this cushion, a surprise expense sends you straight back to the credit card. Once the high-cost debts are eliminated, the money previously allocated to installments can go toward building your full emergency fund.

Signs the Plan Is Working

Your total outstanding balance declines every month, no new debt has been generated, and you know the target payoff date for each balance. Review the list monthly and celebrate every debt you clear.