Deal With Your Debt In 20 Small Steps

Do You Have Bad Debt?

By bad debt I mean consumer debt with high interest. Examples of this would be credit cards, store cards, car loans, payday loans. Additionally debt to friends and family are particularly damaging – maybe even more so than high interest. This is what we will be targeting in this article ….. deal with your debt!

So again, do you have debt?  Zero judgement from me, however it is time to treat death-to-your-debt  as a top priority.

Normally you will read about overly simplified three or seven step debt reduction programs. These look good on paper and give the impression that debt can be banished quickly and with little effort – but I think these 20 tiny steps are far more realistic. 

These 20 small steps not only get rid of your debt, but they also build character, savings, respect, renew friendships, repair family money arguments and let you hold your head high.

20 Small Steps To Be Rid Of Debt For Ever.

Activity 1 – Admit Your Debt
Admit all debts to someone verbally….yep, even the $20 we owe Mum. Everything. The whole truth of your debt situation. If we are one half of a relationship, then it has to be the other person we tell. (This could be very scary – just do it)

Activity 2 – Sort Your Minimum Payments
We must have the income to cover all minimum debt payments. If we are paying out more than we are earning, then we are in an urgent crisis situation. Increasing our income immediately by getting a second stream of income is of the highest priority. Get this sorted first.

Activity 3 – Create A Surplus Quickly
This means sorting a realistic budget that leaves us something left over after paying all basic living requirements and all minimum debt payments. Don’t worry about the size of the surplus at this stage – as long as there is one and it is realistic.

Activity 4 – Automate Your Money
This requires us to set up our banking to automatically assign money out fortnightly (or whatever our pay cycle is) to all billing vendors and to all debts. Only pay minimum payment requirements via automation. All other bills like groceries and gas, pay cash for, or, use a completely separate non-credit card account.

Activity 5 – Save $500 Emergency Dollars First
We do this using our surplus. We stick at it till there is $500 saved. Agree on what this can be spent on – be very strict here about what an emergency is. Do NOT jump this step (I know it is tempting) as it teaches us a multitude of things about ourselves.

Activity 6 – Ramp Up More Surplus
This is where we get creative by either finding other ways to earn a little more or spend a little less – or both. Even if we only squeeze out another few dollars/pounds for the weekly/fortnightly/monthly surplus, then that is OK.

Activity 7 – Document Your Debt
Document all our debts noting interest rate, debt amount and basic lender details. Using a pencil and the back of an envelope is perfectly fine to work this out. Nothing fancy is required.

Activity 8 – Pay Off The Smallest Debt First
This will give us a sense of possibility and an early ‘win’. Pay this debt off by paying the minimum payment plus our surplus from Activity 6. (This will be the only time we take this particular approach)

Activity 9 – Save Another $500 Emergency Dollars
This will give us $1000 in our emergency fund. We achieve this step by rolling up the minimum payment of our already-paid-off debt plus our surplus.

Activity 10 – Pay All Debts to Friends Next
Paying all debts owed to friends next allows us to regain our self-respect and rebuild respect among our friend circle again. Let them know we will never hit them up for money ever again. Be true to your word. We achieve this step by rolling up the minimum payment of our previously-paid-off debt plus our surplus.

Activity 11 – Save Another $500 Emergency Dollars
This will now give us $1500 in our emergency fund. We achieve this step by rolling up ALL the minimum payments of our previously-paid-off debts, plus our surplus.

Activity 12 – Pay All Debts to Family Next
Paying debts off to family is a psychologically powerful step – don’t skip it. This will send a powerful message to our family members that we have got ourselves together and are acting as responsible adults. Equality will be restored once these debts are paid. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus

Activity 13 – Save Another $500 Emergency Dollars
This will now give us $2000 in our emergency fund. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 14 – Pay Highest Interest Rate Debt next
This is the fastest way to now tackle all remaining debt once we have experienced the early win of Activity 8 and regained our self-esteem with Activities 10 & 12. This is the business end of our debt busting war. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 15 – Save Another $500 Emergency Dollars
This will now give us $2500 in our emergency fund. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 16 – Pay Second-Highest Interest Rate Debt next
We are on a roll now. We have served our apprenticeship and this is serious stuff. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 17 – Pay All Debts In Descending Interest Rate Order next
…one by one. Bang, bang, bang. Take no prisoners, show no mercy. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 18 – Save Another $500 Emergency Dollars
This will now give us $3000 in our emergency fund. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 19 – Save $5000 Confidence Dollars 
…or more if we like. Whatever amount makes us feel safe and free. $5000 should cover a couple of months of modest expenses if the need arises and saves us from having to be reactionary if we ever lose our job or experience a significant life changing event. It ‘stays put’ in a high interest bearing account. Hopefully we’ll never have to touch it. Having this amount ‘there’ is our own self-made insurance policy and safety net. It is quite separate to our emergency fund. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 20 – Manage Your Surplus Wealth
Now we have ALL the previous minimum payments of our paid-off debts at our disposal plus our surplus rolling in relentlessly every pay-cycle. What do we do with all this cash now that we have paid off all our bad debt? It is now time to actively build our wealth in whatever way we choose! In many ways we have only just begun when we reach this vital 20th step.
This 20th activity is the true starting line. We were way behind the starting line previously when we had bad debt.

These 20 steps have let you deal with your debt once and for all.

Cheers

Hugh Walker