Eliminating debt is usually not an easy task for most people. It takes planning and dedication to achieve what I call Financial Freedom. I define Financial Freedom as eliminating all debt with the exception of a house payment, and beginning the process of building wealth. The building wealth part is the best part to me, when your money actually starts working for you. I’m not going to get deep into building wealth, mainly because you are here looking for information on getting out of debt, and I could spend all day going through my strategy of building wealth.

If you are like most people looking for a way to get out of debt, you probably have several credit cards, maybe a student loan, and you could even have collection agencies on you trying to collect on your debt. With the exception of having collections calling me, I’ve been in debt and didn’t see how I was going to be able to get out for many years to come. At one point in my life I owed almost $20,000, so decided to start researching different strategies to eliminate debt, and came up with one that worked great for me and many others. I created a plan and followed through with the strategy, and I was out of debt in almost no time, and on my way to building my retirement fund. The part that really got my attention was when I looked at the strategy for building wealth and how simple it actually was to build wealth over time.

Let’s identify the 4 steps to eliminate debt.

  • Create a plan
  • Identify debt
  • Create a budget
  • Pay down debt

I’m going to discuss each one of these steps and provide you with enough information to get you going in the right direction so you can begin eliminating your debt. So let’s start out by taking a look at the plan.


Step 1: Create a plan

In order to eliminate debt, you need to have a plan. Without a proper plan in place it is a lot more difficult to succeed. You'll also want to measure the results result of all your hard work. Seeing your progress really helps motivate a person. There’s nothing like being able to see the light at the end of the tunnel. If you’re not able to see progress each month, it’s like trying a weight loss program without ever getting on the scales, hard work with no visible results.

Here are the basic steps for eliminating debt. We can go into a lot more detail and break things out further, but I think it’s better to look at everything from a higher view.

  • Identify Debt (least to most)
  • Create a budget
  • Pay down debt (debt snowball)

Now that we have a bird’s eye view, let’s take a look at the next step.


Step 2: Identify Debt

We want to start out by making sure we have a good understanding of what your current debt is. I suggest making a spreadsheet or even using the old fashion method of a pencil and paper.

Make 4 columns labeled Description, Amount, Minimum Payment, My Payment. Write each of your debts on a separate line with the least amount you owe first and work your way up to the highest amount of debt owed. When you're finished it should look something like this. 

Eliminate debt sample 1

 Now that we have identified what you owe, it’s time to take a look at your income and expenses.


Step 3: Create a budget

The best way to track your finances is to create a budget. I’m not going to go into great detail on budget’s but this should give you a good understanding on what to do. You want to list your expected income for the month first and total up your monthly income. Start listing your expenses next. I like to list them in order of necessity. List food and shelter on the top of your list, with entertainment and items you can do without towards the bottom.

Below is a quick and simple example of a budget that I quickly put together for the purpose of this article. There are plenty of sources available on the internet where you can download a free budget that should have the most common items already identified for you.



Budget Form sample 1(130159)

 You should expect your budget to change several times before you actually get it close to being correct. Your expenses change every month, and so should your budget. Review it every month to assure your numbers are correct.


A budget is

The quickest way to pay off debt is to put as much extra money as you can into the principle on your lowest payment. There are several options to bring in more income each month such as: work extra hours, take on a second part time job, sell some things that you don’t need that are around house, and reduce your spending. Let’s say for example that you go out for drinks with your friends, or maybe you like to take in moving once a month. These things can be eliminated for a short time in order to use that money to reduce your debt.


Emergency Fund

Another thing that I did not list as a separate step is to have an emergency fund. Most people get in debt because of an unexpected event that they didn’t have the funds to cover, so the easiest solution is to use a credit card. One of the first things you should do before paying down debt is to establish an emergency fund of $500. This way the next time life hands you lemon’s you will be ready for it and you will not have to add to your current debt. If you have to use the emergency fund, your first priority should be to build it back up again.

Also, the $500 is only the basic emergency fund that you should start with. Once you are able to cut your debt, you should build an emergency fund that will cover six months of your normal living expenses.


Step 4: Pay down debt

You have your plan, you’ve created your budget, you have your emergency fund, now it’s time to start paying down debt. Remember when we identified your debt and we had the extra column at the right labeled as My Payment? Now it’s time to put that column to use. Hopefully when you created your budget, you had some extra money left over. We are going to use that extra money to paying off your debt. If you don’t have any money left over, then take another look at your budget and reduce your spending, or start bringing in some extra income using one of the methods I addressed earlier.

For our purposes, we are going to say that we have an extra $200 per month to help pay our debt. Pay only the minimum on each payment with the exception of the payment with the lowest debt. We are going to add the additional $200 to our regular payment, giving us a total of $225 each month for our payment. As you can see that we will be able to pay off our first debt in a few months.

Eliminate debt sample 2

Once the first item is paid off we are going to take that $225 and add to our next item giving us a total of $275 each month. Along with this method, any additional money you receive needs to be added to your payment. Let’s say for example you get a bonus from work, or a tax refund, add that extra money to your payment to eliminate the debt even faster.

Eliminate debt sample 3

 Using the method that I have listed above, I was able to cut all my debt within a year. I also canceled my credit cards before beginning this to ensure that I would not be tempted to put anything on credit. To this day, if I don’t have the cash to buy what I want, I don’t buy it. This concept makes it difficult to make a purchase such as a car, but it can be done. And trust me; it’s a lot of fun buying a slightly used car with cash. You can get some really good deals when you are paying with cash.



You have followed this process and eliminated all your debt, congratulations. But now what? The next thing you need to do is finish building your emergency fund which is 6 months’ worth of living expenses. You will then be covered for those emergencies that life sends your direction.

The next step is to start building wealth. This is not a wealth building article, so I won’t go into detail, but with the right strategy and investment, you should be able to take an early and wealthy retirement. For example, if a person starts out at the age of 20 and invest only $2,000 per year, that person can retire early with over a million dollars in the bank. If you are getting a later start in life and begin at the age of 40, you can still invest $5,000 per year into a Roth IRA and still retire with over a million dollars of tax-free money.