Debt can be like this large dark cloud looming over your head. At least that is how we felt when we were in debt.  It felt like we were just getting by and it was hard to see the light at the end of the tunnel.

We decided that we needed to get a handle on our finances and developed a plan to eliminate our debt. Here is what we did to pay off $52,000 in debt in 18 months which makes us debt-free except our home.

1. Develop a Financial Gameplan

If you have read anything that I have written, you have probably heard of this before. It is basically a form that has your entire financial picture on one piece of paper. This will tell you ultimately how much money you have to work with every month to pay down debt. It will also reveal to you areas where you can cut back to get more money with which you can tackle your debt.

Get Your Financial Gameplan Form Here

When you’re are looking to accomplish something, it is a lot easier to make progress when you have some steps to take. Otherwise, it can be challenging to even figure out where to start. You also don’t want to have too many steps, you want to keep it simple so that you don’t get frustrated in the process. These steps will help you formulate a system that will allow you to get out of debt fast.

2. Organize Your Debt

List all of your debt on one piece of paper from smallest to largest. Then start paying minimum payments on everything except the smallest debt. Take whatever your surplus is, that is, the money you have after paying all your bills and throw that at your smallest debt. For instance, if you have a $100 surplus and the minimum payment on the first debt is $25, now you will pay $125 per month until that debt is gone.

What if one of my debts has a higher interest rate than the smallest one?

This is a question that people ask a lot. The higher interest rate does factor into the equation but I wouldn’t focus on that much. The idea is to develop a system to pay off all your debt fast. Once you begin paying off some of the small debts, you feel like you are making progress and momentum will build. Keep at it and soon enough you will be DEBT-FREE!

3. Create a Debt Elimination Plan

Once you have taken the time to write all of your debts on a sheet of paper, ordering them smallest to largest using the Debt Snowball method. Don’t think about the interest rate at this point, just the total amount owed for each debt. For instance, if your lowest debt balance is a Visa for $200, then put that first. If your second lowest is $400 on a Macy’s card, then put that next and so on. If you would rather use an excel spreadsheet rather than a piece of paper you can use the Debt Snowball form.

See the example below for more details on how to fill it out.

Debt Elimination form Example

4. Track Your Finances Monthly

You have to be intentional about your finances. You can’t just spend money that is unaccounted for and then wonder at the end of the month where all of your money went. The best thing to do is to create a budget that tracks your income on the top and your expenses on the bottom. Then subtract your total expenses from your total income and this will show you if you have either a surplus or a deficit. A surplus means that you have money left over to use to pay down your debt. A deficit means that you are spending more than is coming in and that you need to make some drastic budget cuts if you want to get ahead. I have created a Starter Budget form to help you with this process. In addition, below is a video that will walk you through filling out the form.

5. Put All Extra Cash Toward Debt

This is one of the steps that can be very easily overlooked. When you get a bonus or a tax refund, it can be tempting to want to go out and celebrate. However, if you really want to get out of debt and make progress toward your financial goals, you need to create the discipline of putting any extra cash that you get towards paying down your debt. This is key to getting out of debt quickly since it is these windfalls of cash that you didn’t normally expect that give you the progress you need to build momentum.

6. Sell What You Don’t Need

First, we need to address the word “need”. You don’t need a $50,000 BMW but perhaps you do need a vehicle to get you to and from work. If you want to get out of debt bad enough, you need to make sacrifices now so that you will be better off in the long run. Maybe you don’t have a BMW and a car is not something that you have to sell. No worries. Go through every cabinet, closet, drawer, etc. and find items that you can sell on Craigslist, Ebay, or Amazon to earn some extra cash.

When we were getting out of debt, I was shocked at how much stuff we had to sell. Go through every area of your house and pull out everything you don’t need or don’t use. I used the 1 Year Rule to help determine what to sell. If I hadn’t used it in the past year than I probably didn’t need it. Besides, when you are debt free, you can buy it again if you find that you do actually need it. Make a point of selling things that you no longer need to get out of debt.

7. Scrutinize Your Expenses

Go through your Financial Gameplan or budget, look at each line and say, “How can I make this number smaller?” We were able to decrease a lot of our expenses by simply doing this one thing. I called our cell phone company, insurance agency, internet provider and was able to cut the monthly cost for each one. Consider replacing your cable with SlingTV which has plans as low as $20 per month. Shop your insurance to see if you can get a better rate. Esurance has a great tool to see if you can save money on your auto insurance. Do whatever it takes to get your expenses as low as possible.

8. Consider Refinancing Your Debt

I do think that the Debt Snowball is the way to go when paying off debt, however, sometimes it makes sense to refinance your debt when you have multiple high-interest credit cards. If you are paying over 15% in interest on multiple cards, then refinancing to something much lower can make sense. For instance, Lending Club will let people refinance up to $40,000 and rates start at 5.99% APR.

9. Increase Your Income

Apply for a second job at a pizza joint, serve at a restaurant, deliver papers, do anything you can to bring in more income. I did this and I was able to get a second job in 8 days as a pizza delivery driver. There are many other ways in which you can increase the money you bring in. For more ideas see 10 Ways to Earn Extra Cash.

10. Be All-In

Give it all you got. Once you make a commitment, stick to it. In poker, you go all-in if you are confident you have what it takes to win the hand. If you want to get out of debt fast, then you need to be All-in.

Have any questions relating to getting out of debt? Ask Deacon.

Refinance Your Student Loans or Credit Card Debt

With the average credit card interest rate around 15%, this could save you a ton of money over the long haul. Check out Credible who will help you refinance your credit card debt to as low as 4.99%. They even can help people with credit scores as low as 620. The average graduate who refinances through Credible saves $18,668. Get $50 cash back if you are approved with this link!

They also refinance student loans to as low as 2.60% APR. Use this link to get $150 cash back if you get approved for refinancing your student loan.