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As I mentioned last week, it would be a good time to jump start acting on a financial goal and motivate each other to accomplish it.

This month would be perfect to get a jump-start on  getting out of debt.

It’s never too late to get started on your money goals  and I think by focusing on one thing – setting up your debt free plan – you can make the rest of your year much easier.

I want to share our personal strategy and system that we used to eliminate debt and then have some other people share their personal plans that have worked for them.

My hope is that you find which tools work best for you and your situation.

How We're Working Towards Becoming Debt

My first experience with getting out of debt started when we got engaged. The two of us sat down and chatted about our finances and I discovered that had much more debt than he had.  Not exactly what I was hoping to hear, but oddly enough it was fuel to a newly lit fire.

I made it my goal to pay off my credit card debt before the wedding. I was determined to get married without having a huge amount of credit card debt over my head. I was happy to accomplish my goal, but there was still more to do.

After we got married, the two of us made a plan to pay off the car loan faster. We worked at it and managed to reach our goal.

It hasn't been easy, but it's definitely been worth it.  We have improved our monthly cash flow and we're working towards our financial goals. How did we do this?

Learn the Exact Amount of Your Debt

This was an eye opening experience when I first started. I kind of ignored the whole credit card bill and just focused on the minimum payment that was due.

When I actually sat down and found out the amount and the interest rate I was paying, it served as a motivation to get this done.

Find out how much debt you’re in by either calling up your creditors or compiling all your current bills.

Grab or create  a debt reduction spreadsheet and list all your creditors, the interest rates, and the total amount you owe.

I think some of you will be really surprised at how much debt you have, but don't get discouraged. You're doing this to reduce your debt and come up with a plan that you can maintain.

If you want a more automated approach, you can use apps like Personal Capital or Mint to grab all that information and give you a single place to manage all of your accounts.

Set Up a Realistic Payment Plan

Eliminating and cutting back on unnecessary expenses that don't really matter to you can be be redirected instead reducing debt.

Use either a debt snowflake, snowball, or even an avalanche to work your way to being debt free. Just use a method that works well with your spending habits. Being realistic keeps you on board the plan.

Now that you have a spending system, you know how much money you have to put towards paying down debt.

Call up your credit card company and see if you can lower your interest rate that works for you and your family and get it in writing.

In short: Make paying off debt a priority.

Other Strategies to become Debt Free

Plenty of people have been successful with eliminating debt by coming up with their own strategies.

The key to being success with personal finance is adopting or adapting what works into your own life. Several bloggers have been kind enough to share their tips and strategies.

My Journey to Millions:

Reducing your debt isn't difficult.  There is no magic pill regardless of what advertisers try to push down your throat.  You have to make a plan, be accountable to someone, and follow that plan.

This is the list of items that I followed to get rid of my debt over the past year:

  1. I needed to understand who I was and what I wanted.
  2. I talked to my Wife and we created a plan, together.  I’d like to say thank you to her since she is my greatest asset.
  3. I started this blog so I would be accountable to everyone that reads it.  The funny part is, at the beginning of the blog I had no traffic but even the small amount of traffic made me want to succeed.  THANK YOU.
  4. I created a modified Debt Snowball.
  5. I read all those GREAT blogs on my blogroll.
  6. I kept my eye on the prize – NO CONSUMER DEBT!

Free From Broke:

I was thousands in debt.  I had been doing what I thought I could to pay a little extra to my credit cards, but really it just kept my debt at a standstill.  Then something crazy happened – I lost my apartment.

I had the choice of using what little savings I had and look for a new place to live or suck it up and move back home with my parents.

It was hard but I made the move back to my parents, knowing that the savings in rent would be able to go towards credit card debt.

I stuck to my guns and after a short time I was finally able to say I was debt free!

Sometimes you need to make the tough sacrifices to make your future better!

Narrow Bridge Adventures:

I recently finished an MBA program with a price tag of about $90,000.

During the course of my studies, I took about about $40,000 in student loans.  That was in addition to my existing car loan, which started at $11,000.

I used a modified debt snowball approach to pay everything off.

My key was to clamp down on my budget as much as possible and put everything I could into the loans every payday.

Making every other week payments helped match my cash outflow to my cash inflow, and allowed me to be more agressive in my payments.

I have since paid off the car and have about $16,000 left in student loans.  I am putting $250 per paycheck into the loans, and expect to have them paid off completely in less than two years.

Deliver Away Debt:

While I'm not out of debt yet, I've learned a few things along the way. 3 main ideas make up my debt repayment plan; budgeting, sacrifice, and work.

Without having a written plan (a budget), it will be impossible to get out of debt. You need to understand all the money coming into and going out of the household in order to work a debt repayment plan.

The budget is the best tool to use for this task, but it must be personal.

Budgets are not the same for everyone, so it needs to be setup with each households unique circumstance taken into account.

Many rewarding parts of life require sacrifice. Getting out of debt is no different.

A person who is extremely serious about getting out of debt will stop at nothing to get there. They will forgo some family dinners, activities with friends, and even sleep.

The reward for this sacrifice is the quick turnaround of debt repayment. The more energy put into getting out of debt the quicker it will happen.

Why take 5-10 years to destroy debt when it can take 1 to 2 years depending on the debt load?

The last lesson I've learned is that working your butt of will give you the traction required to get a debt snowball moving.

Budgeting and sacrifice will only save so much money, extra hours or an extra job will being in some much needed income.

Imagine getting a $1,500 a month raise, would that help your debt reduction plan? Of course, that's what working hard to bring in extra income can go for you.

It's that simple, I'm been using these 3 ideas over the past 11 months to repay over $34,000 of my debt.

After a total of 26 months I will be able to pay off $101,000 in debt, my debt freedom date is July 2011. It can be done, even if you are in debt up to your eyeballs.

Your Strategies on Reducing Debt

What tips do you have on keeping your finances in check?

About Elle Martinez

Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..

59 comments add your comment

  1. Derek: Yeah, I learned the hard way that having a plan is the only way I could reach my goals. I tried without a plan a couple times and I would quit after a couple months.

  2. Wow – what a great resource.
    I think knowing your debt and setting a realistic repayment plan is the most important. Once the plan is in place I guess we just need to stick to the plan.

  3. I agree with knowing how much you owe…this can be an enlightening (and depressing) moment. Hopefully it provides motivation for change.

  4. Not only knowing your debt and attacking it is important. One should also note to never get back into debt and also share the lessons that have been learned with others so that they do not make the same mistake.

    • I agree. For me, the way not to get back into it is to use a depreciation schedule. Why use a depreciation schedule?

      4 reasons:

      1) Tells you what is the real cost of such long-term assets
      2) Tells you how much to put off to the side per periodic time period
      3) If doing the 2 items above, and you live within your means including the depreciation costs of long-term assets, you can avoid taking future debt out.
      4) This depreciation also factors into the networth value for the household under the accrual basis of Accounting as dictated by US GAAP rules.

      Most people think of depreciation strictly for businesses, taxes and/or charity, but for me, it serves none of those purposes, but rather the 4 reasons above. In either case though you have to be truthful and perfectly honest about what is expected. It’s not a catch all as there are such things as sudden losses, but it should catch most long-term asset issues on the financial side.

  5. I believe the most important to have the right pace of getting out of debt. You have to be a realist. If you push it too hard, you may realize that you are on the edge of another, much bigger debt. Start with credit cards and other expensive debt tools, keep mortgages for later!


  6. Thanks for the comments guys! Sustainability and consistency is definitely the key to getting out of debt. I’ve had a hard time with that and I’ve learned it’s better to get something going and tweak the process as you go.

  7. Great post Elle, and certainly a great thing to inspire others to think about.

    We became debt free in 2 years and the key for us was getting rid of stuff and learning a little about contentment, sticking to a real budget, and focusing on one debt at a time. We of course used Dave Ramsey’s debt snowball and I can’t say enough great things about his debt elimination strategy!

    Staying motivated is what makes or breaks us. I wrote a post to help people stay motivated while paying off debt—especially the larger ones. I hope you don’t mind me sharing it here.

    • We are far from being debt free yet, but yet, we made a lot of progress too. I follow the rate route, not the principle route and use the number’s system as a motivation, not the number of debt. Why?

      If you go by number of debt, it makes no difference as systems don’t work based on number of debts, but rather based on how much you are in debt by and how much assets you have built up. As such, number of debts is no such motivation to me.

  8. @Brad: It can be difficult to stay on the plan once the initial enthusiasm wears off. Thanks for sharing your post on reducing debt when you’re working on larger loans.

  9. Here are some steps that I recommend when putting together a Debt Elimination Plan.

    1. Stabilize your household situation…groceries, rent/mortgage, utilities and transportation (bus or your car)
    2. Set personal and financial goals
    3. Gather all your bills to see what you owe and to whom.
    4. Put together a budget and plan to eliminate your debt
    5. Action, Action and Concentration

    • Good points. The one I really like is the fact you use either a cashier’s check or money order so as they can’t fraudulantly use the routing number and checking account number to create draft checks without your consent in attempt to get more money from you. One of my wife’s creditors did this against me claiming my wife authorized such draft check. we ended up closing out the checking account as that very issue cost us $117.50 in bounced check fees and court costs with no way to get it back. Of course, that same creditor (Wells Fargo) also attempted to collect from us but only under a different company name after the debt was discharged by the court system as that creditor was the one that pushed us over the edge with their fraudulant actions as we ended up filing bankruptcy in August 1999 and such debts were discharnged in November 1999. As a result of their actions, I will never to business with that company unless I have no realistic choice in the matter.

  10. Elle, Excellent integration between your suggestions and the contributors. Although I have avoided debt, I empathize with the pain. This is a motivating piece for those carrying debt around!

  11. In addition to getting a snapshot view of the debt load at the start, what has really helped me is adding to that spreadsheet to track payments made and (geek that I am) how much is toward the charged balance & how much is interest. I enter payments as they are made & have Excel calculate a running total on each line item & a grand total. Seeing in black & white how much of my $ has gone just for interest this past year has kept me motivated to get these completely paid off.

  12. Hi Elle, One of my wife’s creditors did this against me claiming my wife authorized such draft check. we ended up closing out the checking account as that very issue cost us $117.50 in bounced check fees and court costs with no way to get it back. Of course, that same creditor (Wells Fargo) also attempted to collect from us but only under a different company name after the debt was discharged by the court system as that creditor was the one that pushed us over the edge with their fraudulent actions

  13. I agree with most of your strategy. The one thing I disagree with is in “sucking it up” and moving back in with your parents. If they allowed you to live in their house rent free, then you shifted part of the burden of paying down the debt to your parents. Do not think that it did not cost them for you to live in their home. More water for showers and laundry, more food at family meals, more electricity, higher sewer bills. I think when you become debt free it would be wise to consider repaying your parents for paying a portion of your debt. I allowed a friend to live with our family for a year because he was in financial difficulty, it cost us about $500/month to help out.