If you’ve tried several times to get out of debt and can’t seem to manage it, this is the article you’ve been waiting for. I’m going to tell you why you continually struggle, and I’m also going to provide a simple solution.
On the face of it, getting out of debt seems simple; spend less than you earn and pay back what you owe with the difference.
So why is it that it’s so hard to actually do?
There are a few reasons.
First, trying to get out of debt is intimidating. It’s like having to climb a very tall mountain starting from a very shallow valley.
Most of us stare at that mountain in awe. We think about how much work it’s going to take to get to the top. As a result, we stay anxious and paralyzed. And we stay in the valley.
But how does a mountain climber approach this task?
One step at a time.
They don’t think about the torturous days ahead. They just think about putting one foot in front of the other.
When you’re trying to get out of debt, you might face a mountain of bills, and your debt might be so great that it gives you a nose bleed just thinking about it.
In that situation, I know it’s really tough to think about taking one step at a time but let me tell you a secret.
That is the only way you’re ever going to get out of debt.
In fact, this is exactly what’s behind your struggles. You start off very motivated but little by little, you change your focus to the mountain rather than the step in front of you.
As a result, you give up.
Think about the challenge of losing weight.
Let’s say George wants to lose 20 pounds, and he’s been trying to do it for years.
He’s tried lots of diets – and they all work.
Then, he slips back and ends up heavier than ever.
Let’s take a look a closer look.
Every time George steps on the scale, it reminds him that he is 20 pounds overweight. Let’s say he decides to do something about it.
He joins a gym and starts working out.
He gets serious about eating well.
After a week, he’s shed 2 pounds.
But when he looks at the scale, you know what George sees?
He still sees that he’s 18 pounds overweight.
Those 2 pounds were tough enough to lose. He tells himself that he’ll never lose 18 more. He gives up.
The only way George is really going to lose those 20 pounds is to lose them 1 at a time.
And the only way you’re going to get out of debt is 1 dollar at a time.
What we really need to do is remain focused on taking one step at a time.
How do you do this?
1. Slow down
Get the word “fast” out of your vocabulary. When you want “fast” results you’re setting yourself up for failure. Resolve yourself to the fact that it may take time to get out of debt. Make a commitment to yourself and someone else that you’re going to stick to it.
2. Redefine success
This is also a critical step. If you define success as “having no debt, ” you’re actually setting yourself up for failure – just like George did every time he stepped on a scale.
Success has to be available in smaller increments, so let’s break it down.
In order to get out of debt you might need to do any number of things. There are two main areas; stop creating more debt and paying off existing debt.
In order to stop creating more debt, you need to get a tight grip on spending. That may require finding and implementing a budgeting system and having a family discussion about the new focus on spending cuts and getting out of debt.
There may be other steps as well – like renegotiating or consolidating debt. You also might have to go through all your expenses. Rather than cutting, you might need to shop for lower cost replacements. (Life insurance is a great area where a little shopping could save you a nice chunk of change.)
Each of these are steps and offer you “success.”
Get out a piece of paper.
List all the steps.
Break each step down further. What are all the steps you need to take in order to accomplish those steps?
You might have a list of 30 items. That’s great. You now have 30 “success” steps.
Assign each step to a member of the family with a due date.
Once you complete these steps, you’re going to be much closer to getting out of debt.
Keep in mind that some steps, like following your budget, are ongoing. That’s great, because such steps offer you daily success. All you have to do is follow your daily budget today in order to have success.
If you want to get out of debt, you don’t need to buy another book and you don’t have to start living like a monk. All you have to do is break down your goals into bite-size chunks and start taking care of business – one day at a time.
Your thoughts on debt reduction
Have you faced challenges like these? Did you get out of debt? How?
9 Responses to “Get Out of Debt Success”
Couldn’t agree more. My wife and I have paid off quite a bit of debt but still have a long way to go. I need to stop thinking about the huge total balance and worry about each individual one at a time. We are focusing on paying off each debt one at a time but it can still be a bit overwhelming thinking about the total amount of debt.
Lots of nice “feel good” philosophies presented in this article, but other than looking at the way you spend money as in setting up a budget/spending plan, most of the advice herein is mostly fluff. And the idea that you have to take getting out of debt slowly is a misnomer. Yes, getting out of your mortgage debt may take as long as nine years, but it doesn’t need to take 30 and credit card debt can be eliminated in a few years, sometimes even months, if you know debt elimination techniques.
If people really want to get out of debt, they first need to look at their spending (as the article suggests) and then create a Debt plan which includes plugging debts into a forecasting software and prioritizing debts for quickest payoff based on three criteria:
Shortest to longest maturity
Highest to lowest interest
Smallest to largest principal
Most people think that they can get out of ALL debt the quickest by paying off loans with the highest interest rate, but if they prioritize using all three ways, they might find that prioritizing debts based on how quickly they will mature is the best.
Once debts are prioritized and you can see just how long it will take to get out of all debt, you will become enthused and motivated to stay on track. If you think it’s going to take 30 years to get out of all debt, then of course you’ll work hard on the first couple of debts on your prioritized list, but then when those are paid off will likely be tempted to just go back to spending more than you have and not work on the next debt on your list.
With a prioritized list, you can then apply “power down” methods, working to pay off the first debt on your list. Once that debt is paid off, you take the money from the paid off debt and apply it to next debt on your list, adding more to what you can pay on that debt. You continue applying paid off debt amounts to the next debt on the list until all debt is paid off, exponentially accelerating how quickly you can get out of all debt.
There are mathematical and scientific methods you can apply to get out of debt that work and that you can see working so you will be encouraged to continue on until the task is done.
Get debt forecasting software, run the numbers, face the emotionality of those numbers, create a plan, put the plan on the fridge, follow the plan and think constantly about your own get out debt date. Stop thinking of it as a mountain, and start looking at it as a feasible goal that can be accomplished in as little as 10 years (including a mortgage) if you stay focused on the reality of the numbers.
I agree. The mountain I now face is the mortgage. Its the only one left, but boy is it a big one. Prepaying on the mortgage doesn’t offer immediate feedback like paying off a credit card (instant freed monthly cash), so you have to look at other things like John’s interest calculation. Kind of an all or nothing deal and the only thing you can affect is time left on the debt.
You have to find a way to show yourself progress. My method is to figure up the amount I spend on interest and other expenses(like extra insurance) that are associated with having debt. Right now my interest costs are about $309/month including mortgage. My immediate goal is to get that under $300, which will take about $2300 in principal. I’ve already taken the low-hanging fruit, all of my remaining debts are 4.25% interest or lower, so it takes more principal to make a dent in my interest charges. I’ll be CC debt free in about 10 months just before my current 0% card expires. My budget says I’ll have about $4000 left in savings when I get that paid off.
@ Georgia Wright
Life insurance(or any insurance) is a cost associated with taking risks. When you take out a debt, you are making the assumption that your future earnings will be able to cover the debt. Same thing with starting a family. It would be irresponsible to have a child if you are not capable of providing until the child is ready to provide for itself. If you die or lose the ability to earn, then the life insurance is there to cover your obligations of debt or dependents.
If you never take on a debt and you don’t start a family until you have the cash to raise them saved up, then you never need life insurance. My goal is to eliminate the need for life insurance as soon as possible. The fact that I am diabetic and very difficult to insure helps motivate that goal.
Why do people buy life insurance? Why not invest that money instead in a 401K? Do we really need it? Can we get insurance to pay off your house if you and/or your partner die?
I look forward to the response.
What about nursing home insurance?
Great article. So true! We just paid off our last personal expense other than our mortgage. We were drowning in credit card debt. We started out with lower interest rates but they kept raising the rates until some cards were in the 20% range. With children in school and going off to college, it was just impossible to pay off the way we were doing it. But, this was an accumulation of debt over years!! We tried refinancing our house and using that money to pay off some of the debt. We received an inheritance and put that towards the debt. Nothing helped! We were spending beyond our means and didn’t know it because we refused to sit down and look at our money.. ….as hard as it was. Once we looked at reality and set up a budget with envelopes to put money in for all our expenses….things began to change. We had a plan and as we saw bills being paid, we were more encouraged. However, we knew that paying our credit card debt was going to take us 3-5 years. We were too old to do this so we negotiated with the companies. Paid them off as quickly as possible. Stopped using the cards and stopped spending money without a plan.
Thank you for the articles. My advice to anyone is to open your eyes to your debt. Stop feeling like your the worst person in the world for being so far in debt. Turn it around by being in charge of your money and the choices you make.
I agree, great article! It just happens that today I’m celebrating making my final credit card payment! WooHoooo!
I owe much of my success to personal finance blogs like this one where I learned how to do it and continued to get positive reinforcement and tips along the way.
I use quicken to chart my debts and discovered early on that breaking it down to smaller chunks produced charts where the changes were much more apparent. This is very reinforcing for me and helps keep the focus on that piece. I hang my charts on a bulletin board in my office and just glancing at them now and then makes me smile.
One thing I would like to share. When I started on my mission, after reading lots of blogs and books, I said to myself “I’ve gotten out of debt before, I know how to do this!” so then I had to ask myself why I was back in the same bind again?
This time I realized it was because I didn’t have a plan for AFTER paying off the debt. So 6 to 12 months later, I was always back in debt again. This time I crafted a longer-term financial plan. I actually started saving while still paying down my debt and now I’ll just continue with my existing plan for saving and investing for retirement.
Thank you for all your great articles, I always look forward to them. This blog is one of my favorites.
Well said Neal! And your advice is applicable to many of life’s non-financial challenges as well.
Great article! Using the mountain climber analogy when applied to getting out of debt: the first steps are the hardest and each successive step gets easier and easier. Its the way the math works, as your debt payoff automatically accelerates (builds on) itself.
I’m not saying it’s easy to get out of debt, but I’m saying it gets easier as you progress. The first dollar of debt is the hardest to payoff, and the last dollar is the easiest to payoff.
BTW: I used the Dave Ramsey approach to pay off debt (around $25k worth) — only left with a mortgage, that I’m also prepaying. The DR plan is to pay off the smallest balances first to generate the momentum (after you’ve setup a budget and emergency fund). The DR plan will not get you out of debt the cheapest, but it’s success rate is probably the best out of all methods.