A 6 step plan to dominate your debt

Do you feel like you’re falling into a pit of debt and it’s almost impossible to claw your way out of that mountain of bills? Instead of sitting on your butt and staring off into space yet again, you may want to try a really simple debt repayment strategy that just about anyone can follow. And yes, even you can do it.  


Find Out Just How Much You Owe


Ok, I know it can be incredibly hard to face that demon, but it’s about time you finally faced the reality of just how much you owe. Fish out those old bills, and call the credit card company if you need to, just do whatever it takes to get the exact figure of how in too deep in debt you are. Yes, you’re probably thinking that there’s nothing worse than this, but just imagine yourself dead tired, standing in the middle of a dirty street , under the pouring rain, where all the taxi cabs are full, and with no money for a hotel or a good dinner. Yeah, it’s easier to add those bills isn’t it?  


Curb Impulsive Spending


Now that you know how much you owe, it’s completely vital that you don’t add any more to it. Cut up your credit card if you have to, put it in the freezer, or give it to your dog as a chew toy. As an extra measure, make a bet with your best buddy or neighbor that for the next month you won’t spend on anything out of a pure impulse to buy. And if you lose, you’re going to have to do the dishes in his house for a week. Nothing’s more tiring than that right? The point is you need to identify your trouble areas and put barriers in place. Do what it takes to get the job done.  


Determine the Amount You Can Use to Repay Debt


Now’s the time for some serious stuff. This is where you actually have to make a budget and find out how much of your income you can use to repay your debts. Once you’ve finally made a debt repayment plan, promise to reward yourself by eating in your favorite restaurant or by getting that one thing you’ve always loved. Let it be your last hurrah before finally being strict with yourself.  




Here’s where you can finally put to action all those scenes you’ve seen in The Practice or The Apprentice (who said being a couch potato is all bad?) It’s important to realize that you can actually negotiate your debt with the bank or with the credit card company that you owe money to. In fact, these institutions would be happy to work with you since they are also interested in getting paid and you not defaulting on your payments.  


Pay More Every Month


If you’ve finally taken the first few steps and have been slowly paying off some of your debts, you’ll find that your monthly obligations will slowly dwindle down since your balance is lesser and the interest that grows will also be smaller. Despite having less to pay every month, don’t retreat to your slacker self and still continue to pay the same amount that you initially did. If you continue to do this, you’ll be able to pay your debts faster and find yourself out of debt sooner.  


Reconcile Your Savings


There’s always that age old question of whether you should pay off your debt first or if you should save or invest instead. The simple secret to that is to compare the interest rates between your debt vehicle and the savings or investment vehicle that you plan to use. If your credit card interest rate is at 9%, and your brother is forcing you to invest in a mutual fund with 7% interest, then all you have to do is simple math.


Even a 1st grader knows how to subtract and so should you.   If you’re still wallowing in your debt mishaps and all the things that you have to pay off, just review the steps above and realize how completely easy it is to get out of debt. You know what you have to do. You only have to be disciplined to see them through. When in doubt or lacking motivation review your goals list and envision yourself checking off all your goals. Or you can remember our friend from IHOP.



  • When I was in debt negotiating for a better rate really helped me out. I was able to get a lower interest rate and pay off my debt faster. If this didn't happen it may have been impossible for me to get out of debt.

  • YFS /

    Many people don't know that they can negotiate their debt. I'm glad it worked for you! Do you have any tips for negotiating debt?

  • Great steps for paying off debt. I also want to suggest possibly signing up for 0% transfer credit card and stop using your current credit card (Do not cancel but just hold on to it). Although getting another credit card may not sound like ideal thing to do but if you can get 0% interest on your debt will help you pay off quicker. Also, if you have a home, consider opening a HELOC which you can then use it to pay off your credit card debt and pay less interest.

  • Tough love! Love it!

  • When trying to transfer balances to a lower interest card, it is important to remember that there is also a service charge added to the balance of as much as 5%. Plus it's important to make sure it will be paid off by the expiration date or else you may end up right back where you started.

  • It's amazing how many people never get past Step 1. For years, I refused to total up all my debt – I knew it was bad and I wasn't ready to face it. Once I did, the other steps were a given, because I couldn't do nothing once I knew where I stood. I think that's why it's so hard for people; they aren't quite convinced that they need to change, and they know they'll HAVE to change if they actually see the total in black and white.

    Good post; I enjoyed it and your tips are spot on!

  • YFS /

    Good strategy on the credit card, but since 2008 I haven't seen many 0% balance transfer cards that didn't come with a transfer fee of 3-5% of the transfer balance.

    I will never recommend anyone take a HELOC to pay off unsecured debt. You are essentially putting a secured asset at risk (your home) for credit cards. Another reason why I feel this is a bad move is because finances are behavioral. Just like bankruptcy doesn't fix ones spending habits, shuffling around the debt won't either.

  • YFS /

    I'm always a fan of tough love. We are all adults here, not need to sugar coat anything

  • YFS /

    Good observation. Before 2008, I used to see offers for 0% transfer and no transaction fee. I rather see that now and I have stellar credit. Often times there is a 3-5%1 time fee for transferring the balance. So if the 0% balance transfer is for 12 months and you have to pay a 4% upfront fee.. Your APR is 4%. 4% is most likely lower than your current interest rate, but a person shouldn't think the 0% offer is 100% fee free.

  • YFS /

    You hit the nail on hits head. Most people play their finances on how they feel or how much money they have left at the end of the month. Well, if you never sat down and calculated your income/expenses there is a chance that your feeling/bank account is wrong. What if you missed a debt obligation? I feel that everyone in good or bad financial situations should know where they stand. I of course use a spending plan / budget for this. My other observation is that a person really havw to want to change or address their debt. If I had a dollar for every time I created a 12 month plan for someone and they were all gung ho about it and they stopped after month 2. It's just like weight loss, The 1st of the year everyone joins the gym by the 4th month they don't go anymore. You have to be to committed to get results.

  • Plead your case the best way you can. I was going back to school and didn't have the money to pay things off as fast as I wanted. The creditor took that into consideration. I guess be honest. You never know what might happen.

  • YFS /

    You make a great point. You just have to ask to get results. very similar to asking for a raise If you don't ask you will never get a different response. Thanks for sharing

  • There is a lot of fear associated with money, debt and the like. I didn't check our bank account for years; I didn't look at my pay slip and I certainly had not idea how much we spend. It was that bad. This is all history; I/we have total control (within the limitations of being employed, of course) and know what comes in and goes out almost to the penny/cent. I call the difference GKW (God knows what) and this is getting smaller and smaller.

    One thing I regret not doing is negotiating the CCs – in my ignorance we went straight for a loan to clear most of these out and missed this trick. Was going to say 'never again' but then we will never again be in this situation. Credit crunch teaches you a thing or two.

  • When people are in debt, they do not realize a lot is negotiable. Whether it is the interest rate, interest, fees or even the principle.

  • YFS /

    Good job on working it all out. Too bad you didn't negotiate but at least now you're in a position to never let it happen again.

  • YFS /

    You're right. I wish people knew better.

  • AverageJoe /

    Great tips, dude! When I was a practicing advisor, rather than cutting out impulse spending completely, we instead set a reasonable budget. In practice, this seemed to work better. People cutting out spending altogether "cold turkey" would go into a boom-bust cycle, where they'd do awesome for a few weeks, then celebrate by buying a big screen tv. or other frivolous expense.

  • YFS /

    Similar to a crash diet! Or when people go from smoking 10 packs a day to 0. You definitely have to slow roll people into expense reduction. Even in my spending plans I always specify some fun money.

    When did you spot practicing as a financial advisor and why?

  • I agree, turning your credit cards into a secured loan is risky. If you think about it, a financially troubled consumer will get a HELOC to pay off their credit cards because they're struggling, and it puts a "temporary band aid" on the problem. Once the cards are paid off, they now have a surplus of available credit.

    Most people end up using this available credit and accumulate more debt. People fail to find the root of their debt problem and this causes them to become a "repeat offender" of being in debt.

  • Yeah, you'd be surprised at how one simple phone call can make a huge difference.

  • Marissa @ Thirtsyixm /

    These are great tips. Knowing what you owe is the most important step. Most people are afraid to find that out.

  • Jami /

    All I owe is two more bills on my credit report: one is less than $500. Yeahhhh!! And then it's just my student loans–and yes, i know the EXACT amount and thank goodness it's Good debt – no default or late payments. So I am VERY Happy, because besides my monthly living expenses now I am just counting down the years that the old bad credit history will fall off my credit report. In the meantime it's about developing multiple streams of revenue/income. Three years ago, I gathered up all of my credit reports and all those little bills that don't make it to the credit report and got to checking off "Paid" every month or two; it's been wonderful. And today I KNOW I will NEVER have bad credit history AGAIN: after a three-year long toil it would be INSANE to fall back into the same crevasse. I have 8 bills left that are not on my credit report that I will pay off within 5 years (this is where the Lord's Prayer kicks in)–most likely sooner depending upon streams of income. Peace.


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  • Im all about negotiating but how can you do this if you're current on all obligations? Im assuming this has to do with people who are behind?

  • […] presents A 6 step plan to dominate your debt posted at Your Finances Simplified, saying, “Instead of sitting on your butt and staring off […]

  • YFS /

    You can definitely negotiate prior to being delinquent. You just have to tell a story to get them to believe that you're about to default. Most lenders will definitely work with you before you start missing payments. It might take a bit more convincing but it can be done.

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  • Great post and info.

    I've talked to a lot of people that have tried to negotiate with banks and have had no luck. I think credit card companies are especially tough (not to mention they keep increasing fees). I see ads for companies that do this service for you, but I don't know whether they are trusted.

    Debt is one of those downward spirals that are hard to get out of. Thanks for providing these tips.


  • YFS /

    Negotiation is tough and you may not get results on the first call but consistency will usually seal the deal.

    As for companies who negotiate for you or settle your debt. I personally wouldn't use any of them. They can't do anything that you can do yourself.

    Debt is definitely cumbersome but with a plan and patience you can get through it.

  • aaron /

    Skipped past the other comments, so forgive me if it's been said.

    The math for deciding to pay off debt more quickly or invest is NOT that simple. The time value of money gets complex pretty quickly when you consider compound interest to be gained investing and diminishing interest on debt. Unless you know your retirement goals are easily within reach without putting anything aside (meaning you've already got $$ making $$ for you quickly enough for you to get there) then I recommend investing something if at all possible.

  • YFS /

    I tend agree with you on investing something, but only if that something is to get an employer match. The average person in debt doesn't have the discipline to stay in an investment long enough for it to make sense. For example, equities return 9% on average over the last 20 years. Equities return much much less if you do not hold for that long. So unless you can hold out for 20 years you're probably better off paying down the debt. You can also calculate the taxable equivalent yield to figure out what you need in your investments to match equal the debt repayment. Lastly, you must factor in risk. Once you factor in risk it becomes clear that paying down the debt (anything over 5%) is the path to take. Unless there is a 401k match.

  • aaron /

    We're all patient enough for 20 yrs once it's in the 410k or IRA.

    And it's still not that simple. First, assuming that 9% means we're ignoring that risk. And still, finding the break even point is way more complex. If we're talking about paying anything at all over a term loan payment vs. our assumed 9%-annually-over-20-yrs hypothetical index fund, you're way better off putting whatever extra cash into the fund. You'll end up with several times more what you put in, right? Right. Even then, the math is more in my favor for short-term loans like auto loans than it is for a 30 yr mortgage. Now, the math for credit card debt is super hairy and you sure-as-hell better be putting in way more than the minimum, but when you're talking about doubling investments every 8 years or so (that's what 9% gets ya), one is still better off putting something aside.

    Don't get me wrong. I'm with ya on the cause. It sucks to be buried. I was there 3 yrs ago, but putting aside a few hundred a month now beats several years worth of being able to put aside $1K a month a few yrs early from closing a 30 yr. mortgage.

    I guess I'm seeing a blanket statement that you've made and want to make sure you realize that while paying off a debt quickly my feel a lot easier than spreading yourself, in strict financial terms, it is not always the best way, and the best path is NOT AS EASY AS SUBTRACTING INTEREST RATES. I mean, that's the beef that got me started. I don't care which someone does as long as they're doing something to help themselves.

  • YFS /

    I agree with 401k's and IRA's we are definitely patient enough. I'm not assuming 9% without risk. I specified risk adjusted returns in my last reply. I also agree that if someone would put their money and actually keep it invested for 20 years they will fair better than paying off debt (if they can keep the money invested). The issue many forget is that personal finance is behavior and not just numbers based. Everyone knows what they are supposed to do but many do not have the discipline to see a plan through. Kind of like working out. Everyone knows that you should work out, yet they do not do it (most people). The same reigns true with investing and staying invested.

    So in summation we agree on a lot of things, we are splitting hairs on the grey areas in my opinion.

  • Good advice YFS .. A couple of questions.

    1. When negotiating with your creditors.. What were you negotiating *for*??… A better interest rate? A lower minimum payment? Forgiveness of a portion of the debt? All of the above?.. I could see them maybe doing the first, and probably the second.. But getting any debt forgiveness, unless you were already defaulting and missing payments, would be something to behold.

    2. When it comes to Savings vs. Debt Payments.. I think its a little more than a comparison of the percentages. You should probably have something in the savings plan to cover life's little emergencies (car repairs, broken down tools, etc).. Otherwise you will toss yourself right back into debt again. Even if you have debt, building up a savings buffer of $1000-2000 always seemed like a wise thing to do.. Disagree?

  • YFS /

    I'm a fan of having 1 month of expenses in the bank before paying off debt. $ 1,000 is not enough money for anyone to think they are comfortable.

  • Hi there, You have performed a great job. I'll certainly digg it and in my opinion recommend to my friends. I am sure they will be benefited from this site.

  • YFS /

    Thank you I appreciate it

  • […] it may sound complicated at first, there really is a simple way to reaching a decision if you should pay your debts off first or if it’s time to invest for the future. It all lies in the relation between debt interest rates […]

  • I'm with ya on the cause. It sucks to be buried. I was there 3 yrs ago, but putting aside a few hundred a month now beats several years worth of being able to put aside $1K a month a few yrs early from closing a 30 yr. mortgage.
    My recent post How to build your Pinterest following

  • […]   With that 30k we were able to do some things to substantially increase our net worth in 2011 and pay off some debt. Paying down debt does not increase your net worth, but it frees up capital so you can hopefully […]

  • […] it may sound complicated at first, there really is a simple way to reaching a decision if you should pay your debts off first or if it’s time to invest for the future. It all lies in the relation between debt interest rates […]

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