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8 Surefire Strategies for Eliminating Debt

Last week, we put our goals on paper as a way to cement our commitment to them.

This week, the rubber hits the road as I share some of the effective ways I approached my debt on the way to saving for a dream trip around the world.

1. Value saving money over spending it

Have you ever been without debt? Maybe the last time you can remember was when you were a kid.

Those were the days! Cultivating a low tolerance for debt may translate as dull and conservative; however, if you require money to reach your goals and dreams, the sooner you adopt this attitude, the better.

2. Buy a book about paying off debt, TODAY

A $12 book I bought about five years ago helped me organize my approach to paying off thousands of dollars in debt over the years.

I went with the catchy Debt-Free by 30, Practical Advice for the Young, Broke, & Upwardly Mobile.

Just about any good debt book will provide a path for you to follow via answering self-assessments, accounting for monthly expenses, and harping on the evils of credit card companies.

Flipping through the book, I cringe at having considered it acceptable to be paying $140 a month in credit card payments (most of it toward just the interest).

3. Apply the 90/10 rule with gift (or unexpected) money

A year after one of my grandmother's passed away at the age of 90, I received a monetary inheritance.

Well before it was wired to my bank, I had established a plan to use 70% to pay off the total balances on my three credit cards (canceling two of them in the process), 20% as seed money for my trip (which I locked up in a 12-month Certificate of Deposit), and 10% on “stuff.”

When the money arrived, I executed my plan immediately.

To be honest, I have no clue as to what happened with that remaining 10%. It just seemed to evaporate (which is why I strictly limited the percent of purposeless money).

4. Pay off high-interest loans first

I picked this tip up from a second book, The Four Laws of Debt Free Prosperity, which I received for free as part of a lunch series on financial planning offered by my employer.

By the time I was reading it, I had worked up my one remaining credit card's balance to somewhere around $2,000, so I was struggling to pay it down again.

Here's the Debt Elimination Exercise in an Excel document, which I drew up at the time I was reading the book, as mentioned earlier.

Ultimately, I decided not to worry about paying down my car loan (see tip #8).

5. Use online banking to set up automatic payments

Paydays are like being drunk.

You have a sudden influx of money into your bank account which can cloud your judgment, tempting you to buy stuff, rather than pay off your debts.

To ensure you continue to chip away at them and to avoid racking up late fees, schedule debt payments to coincide with your paydays.

Many institutions allow you to schedule recurring payments to make it even easier for you to part with your money (don't worry; there's no better place for it to go).

Bonus Tips and Anecdotes

6. If you owe money to family or friends, share your goals (better yet dreams), with them, and suggest they forgive your debt instead of buying you a birthday or holiday gift.

In effect, you include them in making your dream a reality, which is a powerful approach.

7. Resist the temptation to sign up for a new retail store credit card for the instant discount on the items you're purchasing at the time it's offered.

If you're like me, that instant $30 savings can lead to a $1,000 wardrobe financed on store credit (and high-interest rates).

Despite this lesson, I still buy at Banana Republic…just with cash rather than credit!

8. If you happen to crash your car (like I did in 2005), and you need another, buy it used, and put ALL of the insurance payment toward the down payment. Do this regardless of the ways dealership finance or bank people try to suggest it's better you invest it (thus taking on a higher debt through their organization, and increasing their revenue from interest payments).

It's better to deal with your debt while you still can, rather leaving it for your loved ones in your will. What have been your most effective strategies to tackle debt?

Planning a trip? Go Backpacking recommends:


Thursday 10th of February 2011

We will contact your creditors to request that they accept lower payments from you We will take care of any phone calls or letters that you get from creditors You just need to make your one monthly payment and we will look after everything else. ------------------- debtmanagementplan


Thursday 3rd of May 2007

Great advice as usual, Dave. Regarding #2, there is a ton of free sites online regarding getting out of debt. The main one I subscribe to is GetRichSlowly - some of the best financial advice that I've found online.

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