4-Step Plan To Destroy Your Debt

Updated on July 8, 2017
Rbostick profile image

I enjoy writing about finances and investing, and I hope to teach people how to be more successful with their money.

The road to financial freedom.
The road to financial freedom.

Debt Is Costing You More Than You Think

The average American has more debt than they have assets. Debt payments also make up the bulk of money going out of our pockets each month. Our car notes, mortgages, and credit cards are a long term drain on our ability to create personal wealth.

You will see later in this article how much money I spend per year in debt payments. It's an insane amount, an entire annual income for the area I live in. Imagine what you could do with almost $40,000 added back into your pockets each year.

Do you think you could take that dream vacation? Maybe you could finally fill that retirement account, or save enough to send your kids to college. When you see the amount of money you spend each year on debt you will realize it's not an amount to take lightly, it's an amount that could change your life.

The truth is, debt is killing your ability to generate long term wealth, and it's preventing you from fully enjoying your life. To much debt prevents us from being able to do what we want to, or it forces us to add more debt in order to get the experiences we want and need in life. Debt is a big deal, you should have a plan to destroy it.

What follows is a 4-step plan for destroying your debt, and beginning to live the life you want.

1. List Your Debts

This is the first and easiest step. Simply take the debts you have and list out how much you owe, followed by what your monthly payments are. Arrange these from least to greatest based on the total owed. Now add the interest rates, having these will help you determine how long it will take to pay your debts off.

Your list should look something like this.

Debt Target List

Debt Name
Amount Owed
Monthly Payment
Interest Rate
Furniture Loan
Car Note #1
Car Note #2
Student Loan

Now that your debts are listed you can see where you stand. I like the total row, where I can see exactly what my debt is costing me each month. Why? Because this is the amount I'm striving to put back into my pocket each month.

After this plan is completed I will have $3,157 extra dollars each month! How much will you save? How much per year is that? Mine is $37,884! And that's almost a full time job where I live. What could you do with your savings? Imagine that amount being actually being used in your life.

Have you ever filed your taxes, seen how much you made that year, and then thought to yourself, "Where did it all go?" This is where it went. This is where the majority your money is being spent. Debt! Use that number to motivate yourself.

2. Figure Out Your Repayment Plan

Alright, we have our chart, we know how much we are striving to put back into our pockets each month, and we know what we can do with that life changing amount. How do we get there?

I advise you to target the smallest debt you have, the first one in your chart, since it will be the fastest to eliminate. This is an easy win, and you can compound this win into momentum to get you through the larger debts coming next.

Now here is an important decision, are you able to pay extra on your debts? If not that's fine and you can still follow this plan it will just take a little longer, however even $100 extra a month will drastically decrease how long it takes you destroy your debt. Lets look at the plan.

My Visa card has a balance of $6,356 and an interest rate of 23.4% if I make the minimum monthly payment of $156 a month it will take me approximately 7 years to pay off. This is not how you get ahead in life, this card will take the almost a decade to pay off.

Now let's add $100 to my payments each month. By paying $256 my time frame plummets to almost 3 years. By adding $100 a month to my payments I cut the amount of time it takes to pay this card off down by 4 years!

Can you afford more? I hope so, even $50 will help you pay your debt down significantly faster.

Here is the calculator I used to find my time frame, it's CreditKarma's.

3. Pay Off Your First Targeted Debt

Buckle down and pay this debt off. This sounds easy, but plenty of people plan and fail to follow through with that plan. If you're paying extra you may feel tempted to skip paying that amount and just make the minimum. Don't do it.

Remember why you made your plan and stick to it. While you are paying off your debts avoid picking up any more long term debt. After all if you continue to add debt you will never be free of those payments. Look at your number again, and stick to it.

Dave Ramsey is where I originally read about debt stacking, or "snowballing".

The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness
The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness

Dave's Strategy is the basis of the plan presented here. His book got me started in investing and getting out of debt.


4. Snowball Your Payments.

This is the money maker, the debt breaker, and the portion of the plan that will help you destroy your debt. After you pay off your smallest debt don't put that payment in your pocket and spend it, simply take the money from that payment and roll it into the next target.

Here's an example. Earlier I decided to spend an extra $100 a month on my credit card for a total of $256 a month. After I paid this debt off I took the $256 and applied it to my next debt, my furniture loan.

This made my monthly payment $436, but it didn't cost me any extra money! See by rolling the previous payment into this one I don't actually spend any more money than I was prior to the first debt being paid. Now I am drastically cutting down the amount of time it will take me to pay this debt off, let's look.

The furniture loan would normally take three and a half years to pay off. But by snowballing my payments to $436 I can pay this loan off in 16 months. Less than a year and a half.

Now lets see how this compounding really helps and roll this payment. My Mastercard would have normally taken 6 years to pay off! By snowballing my payments I now pay $672 a month($156 + $100 + $180 + 236 = $672), and again this is still me paying $3,157 a month on all my debt. No more than I was paying when I did my table.

At $672 a month I can pay off my Mastercard in just 16 months! Just like that I have decreased the amount of time I have to pay this debt by about 5 years.

This will continue as you pay down your debts. You will compound your payments continuously and each debt will take so much less time to pay off.

Let me show you the end result on my mortgage, a loan I took expecting to pay for 30 years. By paying $3,157 a month on my mortgage I can pay this 30 year loan off in a little over 3 years. Go back up to that calculator and punch in my numbers, better yet punch yours in and see how fast your mortgage will disappear.

I have a confession, my numbers are not 100% accurate. See as you're paying down your first debt you are still making the minimal payments on all your other debts. This will decrease the amount of time you actually spend paying these debts off even more. This is a truly powerful system for paying off your debts.

With your debt down, set your financial goals on autopilot with David Bach.

The Automatic Millionaire, Expanded and Updated: A Powerful One-Step Plan to Live and Finish Rich
The Automatic Millionaire, Expanded and Updated: A Powerful One-Step Plan to Live and Finish Rich

David Bach helped me automate large portions of my plan to get out of debt. He can help you too!


It's A Debt Free Life

Now that you have a plan to pay off your debt and you see how easy it can be, just remember a few key things.

  • Don't add more debt. There is almost nothing you need that is truly worth the cost.
  • Stick to it. Don't take the extra cash early, look at your chart again and see how much you stand to gain when you are completely done.
  • You can do this. I know it seems easy written out, in practice it's much harder. Keep reminding yourself why you started.

When you finish paying off your debts you can decide what to do with that extra money. Fill that retirement account up, pay for your kid's college, or take that dream vacation.

Before you go please leave a comment or ask any questions you have. If this article helped you out let me know! Thanks for reading and don't forget to share this article on social media, it really helps me out and can help other readers out too.


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    • Rbostick profile image

      Rick Bostick 8 months ago from Spearsville, LA

      Kara, I hope you eliminate your debt! Ask any questions you may have and thank you so much for the comment, remember to share if you enjoyed the article.

    • Kara Skinner profile image

      Kara Skinner 8 months ago from Maine

      Thanks for the article. It's incredible how much money you save once you take away monthly debt payments! I didn't realize that before.