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How To Pay Off Your Debt When You Don’t Know Where To Start

how to start your journey to debt freedom above woman dancing with colorful balloonsMost people have struggled with debt at some point in their lives, including my wife and I.

Believe it or not, my wife graduated from college with over $80,000 of student loan debt.

She had no clue where to start in her journey to pay off her debt and I know she wasn’t alone.

In fact, a friend recently asked the same question.

Our friend is in debt and wants to get out of debt but has no clue where to start. Many people around the world are in the same exact situation so I wanted to share some easy ways to get started on your adventure of destroying your debt.

Just remember, it is likely your debt won’t disappear overnight. Paying off debt can be a long journey, but it’ll be more than worth it in the end.

Let’s get started with the first step.

Get Together A List Of Every Debt You Have

The first step to pay off your is to know every debt you owe. This can be a bit overwhelming, but it is a necessary first step.

I personally start by pulling my free credit report from, the only place where you get 100% free credit reports as authorized by federal law.

You can pull your credit report from all three bureaus if you wish or you can simply pull one report from each bureau every 4 months if you want to monitor your credit for fraud. Either way, you’re entitled to one report from each bureau (Experian, Transunion and Equifax) per year.

This report will show you a list of all of the debts that you owe other than loans from friends and family. The balances owed may be a month off if your creditor hasn’t reported your most recent payment, but it will give you the big picture of who you owe money to.

Once you have this list of who you owe money to, it’s time to dig deeper to get the rest of the information you’ll need.

Find Out Everything About The Debts You Owe

Now that you have a list of who you owe money to, it’s time to figure out everything else about your debt. Here’s a list of what you’ll need to know about every debt you owe:

  • Exact amount you owe
  • Payment amount
  • Frequency of payment (monthly, quarterly, etc)
  • How many payments left (if fixed term debt such as a mortgage, student loan or car loan)
  • Interest rate and whether it is fixed or variable
    • If variable, what the rate is based on (prime rate, LIBOR, etc)
  • Due dates
  • Grace period (if applicable)

Where do you get this information? To find out how much you owe, check your most recent statements.

For everything else, you’ll need to do a little bit of digging. For loans, check the loan documents you signed. If you can’t find the loan documents, try calling the creditor or log in to their website and check your account details.

For credit cards, check the terms you agreed to when you signed up for the card. You may also be able to find this information online after you log in to your account on the credit card’s website.

If you’re having trouble understanding the terms, call the number on the back of your credit card. A representative will be more than happy to help you.

Assess Your Debt Situation

It’s time to look at the big picture now that you’ve figured out all the details on every debt you owe. It probably won’t be fun and it could be just plain ugly, but you have to do it to move forward.

First, add up the total amount of debt you owe. The number may be scary but we’re going to work on knocking it down, so don’t worry too much yet.

Next, take the amount of all of your monthly payments and add them up. This the minimum amount of money that you owe on your debt every month. Again, this can be overwhelming, but you’ll be able to knock this down as you pay off your debts one at a time.

Congrats – You’ve Started The Debt Pay Off Process

The steps you’ve completed so far have gotten you well along the process of paying your debt off. Even though you may feel like you haven’t made any progress yet, that couldn’t be further from the truth.

You now know everyone you owe money to, how much money you owe in total and how much your total monthly payments are. You now know the basic information you’ll need to make intelligent decisions on how you’ll pay your debt off.

The next step in paying off your debt is setting yourself up for success in your debt pay off journey.

Setting Yourself Up For Success To Pay Off Your Debt

Now that you know everything about your debt, including how much you owe in total, it is time to take the next step in your debt pay off journey.

Hopefully, you’ve let the magnitude of the debt that you owe sink in.

You Need A New Mindset

You know that you’re in consumer debt. You can no longer deny it. You’ve added up the numbers yourself.

There is only one way that people get into consumer debt. You spent more money than you earned. Plain and simple.

So how do you get out of debt?

The answer is just as easy on the surface. You have to spend less than you’re earning. That isn’t all though. You need to spend a significant amount less so that you can both make the minimum payments on your debt AND still pay extra to knock out your debt quickly.

Why is it important that you pay your consumer debt off quickly? Consumer debt is an emergency.

You’ve set your financial life on fire by going into consumer debt. The only way out is to slowly put the fire out by suffocating it completely through paying off your consumer debt permanently.

Once you realize this, you’re on the right path but you’re just at the beginning of the road. Don’t get frustrated and whatever you do, don’t give up already.

My wife and I know exactly how you feel. When we were staring at minimum payments of more than $700 per month for over $80,000 of student loan debt we thought it’d take decades to get out of her debt.

Luckily, we saw the light and followed the exact path I’m explaining now. We ended up paying off all $80,000+ of my wife’s student loan debt within just three short years.

You can get out of debt, too. So how do you get started along the path?

Quit Using Consumer Debt Forever Starting Now

The first step is breaking the cycle of going deeper into consumer debt. You MUST give up consumer debt altogether.

You can no longer use the tools that enabled you to get yourself into the situation you’re in now. Are you ready to make that commitment? When you are, continue reading.

Now that you’ve decided to give up consumer debt for good it’s time act on that promise to yourself.

You can no longer use credit cards. You can’t take out payday loans anymore. No more borrowing money from friends, family or co-workers. No borrowing money from anyone. No more going into debt for consumer purchases.

This is serious and you should treat it that way.

Remove The Temptation

The best way to give up consumer debt for good is removing any temptation from your daily life.

Go cut up your credit cards or freeze them in a block of ice so thick that you can’t get to it for an impulsive consumer purchase.

Go out of your way to avoid the payday loan shop that you normally stop at to get some quick cash.

Tell your friends and family straight up to never, ever loan you money again. Heck, your friends and family will probably be quite happy about that.

Are you addicted to shopping online at with your Amazon Prime membership? Cancel it and remove your credit cards from their system. Turn off one click ordering and remove your Amazon bookmark from your browser.

You must make sure to remove anything that tempts you to spend money that will put your further into debt.

Trust me. After a couple of months, you won’t miss spending money as much as you think you will.

Making the conscious decision to change your mindset is no easy task but it is absolutely essential if you want to change your relationship with your money and destroy your consumer debt forever.

Once you’re committed to the new mindset and have let it sink in for a bit you’ll be ready to begin tackling the next steps of the debt pay off process.

The next step is figuring out how you got into debt in the first place.

How To Discover Why You Ended Up In A Terrible Mess Of Debt

I bet you’re psyched to figure out which debt you should pay off first, but you’d be jumping ahead of yourself.

In order to completely vanquish consumer debt for good, as your new mindset states, you must first figure out how you got into consumer debt in the first place.

Without this knowledge, you can’t prevent yourself from falling into the same consumer debt trap twice.

You must examine your past and learn from the mistakes so that you don’t make them again in the future.

There are two major ways most people get into debt. The first is a major life-changing debt event and the second is through simple money sinkholes, which I’ll explain in the next installment of our series.

For now, let’s take a look at some significant debt events that could have caused your debt.

Look In The Past For Life-Changing Debt Events

Not all debt is due to overspending and consumerism, but that doesn’t change the fact that you want to get rid of it. There are a few times you can have life-changing events that put you in serious debt that you never expected to incur.

Take a look back in your past and see if you can find any of these debt-incurring events.

Higher Education and Student Loans

The first event was the one my wife personally experienced. She ended up with over $80,000 of student loan debt.

Going to college and taking out student loans can leave people in a pretty serious debt situation, much like the one we were in. You can graduate debt-free if you really put your mind to it, but the past is the past.

To avoid incurring too much student loan debt in the future, don’t let yourself or any family members go into more debt than they can afford.

You need to calculate this based on their post-college career path. Make sure you have a solid plan to pay that debt off once you achieve your educational goals.

Medical Bills – With or Without Health Insurance

Another horrible, debt creator happens more often than we’d like to think. A simple medical problem can easily put someone with or without health insurance into thousands or tens of thousands of dollars of medical debt.

Even though you can normally negotiate the bill down or set up interest-free payments, this debt can be soul-crushing.

The best way to avoid going into a huge amount of medical debt is to protect yourself and your family with health insurance. Add in a decent emergency fund and you should be well covered.

Death Of A Loved One Without Enough Life Insurance

If medical debt wasn’t bad enough, you can get into even worse financial trouble should someone in your family pass away.

In addition to dealing with the final arrangements of your family member, you’ll now have to learn how to live on less. A big chunk of income could have disappeared and you’ll still have the same bills and debt to pay off.

The best way to prevent going further into debt in this situation going forward is to make sure that you have enough life insurance so that your financial life won’t be a struggle if something should happen to your loved ones.


Divorce is another nasty debt inducing event many people face. Splitting up from your significant other can get nasty in a hurry and can leave you with more debt than you can handle on just your income alone.

You could have been forced to take out a larger mortgage to pay you ex-spouse their half of the equity in your home. You could have been burdened with half of the credit card debt that you didn’t even know existed.

Regardless of how it happened, it is in the past. Just make smarter decisions going forward and make sure your next marriage, if you remarry, is with someone you are a better fit with in terms of both finances and personality.

Job Loss or Extended Unemployment

Preparation is key for avoiding financial speed bumps. Most people I personally know aren’t prepared for one of the biggest financial speed bumps you can face, the loss of a job.

Unless you get a new job quickly, you’ll be burning through your cash reserves and racking up the debt very quickly after your last paycheck hits your bank account.

Few people have an emergency fund large enough to last through the difficult times of an extended unemployment spell. The best way to prevent going into debt in the event of a job loss is to have a fully-stocked emergency fund of at least six months worth of expenses.

Failure Of A Business

The failure of a business is much like a job loss because you’ll no longer have an income to support yourself, but in some ways it can be much worse.

Many people throw every last penny they have trying to save a failing business and that normally includes maxing out the credit cards in a last-ditch effort.

To avoid this horrible outcome, try to take a step back and evaluate your business objectively. Hopefully, you’ll be able to see the writing on the wall before you incur massive amounts of debt trying to stop a sinking ship.

Accidents or Acts of God (Hurricanes, House Fires, etc)

Accidents or acts of God can be financially disastrous. Whether you’re in a car accident, are victim of a burglary, house fire, flood or hurricane, these types of events can set you back thousands of dollars easily.

If you didn’t have the proper insurance or money in the bank you might have to go into massive debt to get your life back on track.

Make sure you’re properly insured for the property you own and that you have enough cash to cover any deductibles on these policies if you want to avoid going into debt because of these events.

Short or Long Term Disability

A disability, whether caused by an accident or an illness, can either be a short term or a life long problem for your finances.

If you’re unable to work and didn’t have short or long term disability insurance your financial life could be ruined by the fact that you can no longer earn money for your family.

In the short term, you could end up in a ton of debt while you’re waiting to heal before going back to your job. If you end up being disabled for a longer period of time you may never be able to recover financially.

Once again, insurance and a full emergency fund can prevent the financial part of the disaster of becoming disabled. We’ve dealt with a couple of short term disability stints and were very glad Tori had short term disability insurance through her employer.

Prepare For These Situations To Avoid Debt

As you can see, there are many times when an unexpected life event can throw you tens of thousands of dollars into debt if you aren’t well prepared with proper insurance and an emergency fund.

Do your best to prepare for the worst-case scenarios. By doing so, you will have eliminated many of the threats to your debt pay off journey.

Once you understand all of the ways how you’ve gotten yourself into debt you can protect yourself against it happening again. You’ll be well along your way to paying off your consumer debt once and for all.

The next step is taking a look at money sinkholes and how they can put you in the same horrible debt that these major debt events can.

Examine Your Financial Habits For Money Sinkholes

You don’t have to experience a life-changing debt event to end up in debt.

Simple consumerism or spending more than you earn for a long period of time can put you in an equally horrible debt position.

Many people don’t realize how their small decisions can add up into a big problem until they experience hitting rock bottom or get that dreaded wake-up call alerting them to the now bigger issues.

What Is A Money Sinkhole?

I personally think these types of money issues are very much like a sinkhole. A sinkhole forms when an underground water source slowly eats away at what supports the ground above.

At first, you’ll never notice a problem because there are no visible signs of problems. As the support continues to be eaten away, the ground starts slowly sagging.

At this point, you’ll start to see small problems like cracks on concrete and tiles in your home. Then one day, without notice, the surface collapses into the hole below, causing massive damage. When the sinkhole shows itself is the moment that most people realize they have a problem.

Hopefully, you haven’t actually gotten to the point of a money sinkhole swallowing your financial home, but there is a good chance your money habits are slowly eating away at the ground supporting your financial home if you’re in debt.

Instead of continuing these bad money habits that will eventually lead to your home being swallowed by a sinkhole, you can make a change after recognizing what financial problems lead to money sinkholes.

So How Do You Find A Money Sinkhole?

It’s hard to find a money sinkhole when you personally can’t see any visible signs of your spending problems. Luckily, you can find these problems before you get too far into debt. So where do you start?

The first step to discovering is to track your income and expenses. You’ll want to have at least two months of data in order to weed out any anomalies in the data.

The more data you have the more accurate the snapshot of your situation will be. Here’s a couple of quick ways to figure out what your prior income and expenses were in case you haven’t been tracking your finances.

One way to track income and expenses quickly is to use an aggregation tool like Simply set up a Mint account and link all of your financial accounts (banks, credit cards, loans, etc) to the Mint interface. Once you’ve done that, categorize any uncategorized transactions and take a look at the data in front of you.

If you’d prefer not to use an aggregation tool, you can do the same thing with a bit of time. Take statements from your financial accounts for the last few months and a piece of paper or an excel spreadsheet. Then, simply classify all of the line items on your statements into income and expense categories.

Once you have your income and categorized expense data you can start looking at the numbers to see what type of story they tell. The first thing you should check is whether you’re spending more than you earn.

The next exercise is to order your expenses from the largest expense category to the smallest expense category. If you spend your money based on your values, you should see the things you value highest at the top of your expense list and the things you value the least at the bottom of the list.

If that isn’t the case, you have some work to do.

The next step is starting to take action by making small changes.

Small Changes Add Up Quickly When Paying Off Your Debt

So far you’ve committed to getting rid of consumer debt for good and changing your mindset to successfully pay off your debt.

You’ve also you’ve figured out why you’ve incurred the debt you have, either because of a life-changing event or a money sinkhole, and you’ve tracked your income and expenses.

Now it’s time to take some action and start making real changes in your financial life.

Why You Should Start With The Little Things

The most important part of paying off your debt is permanently changing your mindset to one that allows you to live within your means. If you start making drastic changes immediately, you might end up in a situation much like a yo-yo diet.

Instead of pushing yourself to the limit by completely changing your life all at once, you should start with the little things and gain momentum as you get further along in your debt pay off journey.

What Are The Little Things?

The little things are whatever you see in your historical expenses that you wouldn’t mind getting rid of or scaling back on. Unfortunately, every person is different so I can’t tell you exactly what to cut.

However, there are quite a few expenses many people would never miss.

Some Expenses You Probably Won’t Miss

Stupid fees are one expense that absolutely no one would miss.

Quit incurring fees from over-drafting your bank account, making late payments or little fees that provide no value to you whatsoever. Pay more attention to your finances and you could save hundreds in this category in just a couple of short months.

Another trick companies use to take your money is the subscription model. You have the best intentions when you signed up for the gym or those magazines sitting unread on your end table, but you never really got around to taking advantage of your subscription services.

Instead of letting subscriptions continue to take your money month after month, simply cancel these services. There may be termination fees, but if you’ll save money in the long run by canceling now, generally it is best to pay the fee and get it over with.

Another way to make a small change is to simply cut back a little bit on your everyday expenses. Decide on a percentage you’re comfortable with and reduce your spending in some of the categories you know you overspend in.

It might be clothing, dining out, or buying gourmet groceries. Regardless of which expenses you decide to cut back just a little bit on, it’ll all add up in the long run.

Some Little Actions You Can Take To Save Some Major Money

Believe it or not, there are some simple actions you can take that won’t change how you live your life at all but these actions will save you a ton of money.

My personal favorite is called “the ask”. All you have to do is call up a service and ask for a discount. You’d be surprised how often it works.

One example of “the ask” that I use every few months is calling my cable company and asking for a discount. Whenever they try to increase my rate, I simply call and ask for a discount.

Sometimes I have to ask to talk to a supervisor or the customer retention department, but I’ve received a discount every time I asked. This discount has ranged anywhere from $120 to over $600 per year. That’s a lot of money when you’re trying to get out of debt.

Another great way to use “the ask” is to lower your interest rates on your credit card debt. Many times, if you simply call your credit card company and ask them to reduce your interest rate they’ll comply.

Make sure to highlight why they should lower your rate. Explain to them that you’ve made the last year’s worth of payments on time and you’ve been a customer for 5 years.

What Should You Do With All Of The Money You Save?

If you’re now spending less than you earn and these techniques have saved you even more money, I bet you’re thinking that you should use this money you saved to immediately pay down your debt.

There is a better place to put at least a little bit of that money.

An Emergency Fund Is Essential To Debt Payoff Success above a piggy bank frowning and slowly sinking in water

A Small Emergency Fund Is Essential To Debt Pay Off Success

I bet you’re excited about the money you’ve been saving by paying attention to the little things.

Now you want to know what you’re supposed to do with it.

Well, today’s your lucky day, because what you need to do with the money you’re saving is to set up a small emergency fund before you start paying off your debt.

It might seem counter-intuitive to put money in a bank account that earns less than 1% interest when you’re paying even more interest on your debt. However, it makes perfect sense based on the mindset you’ve been adopting throughout this series.

The goal is to completely change your life and pay off your debt for good. Having a small emergency fund gives you a much better chance of making that a reality.

Why You Need A Small Emergency Fund

Our goal is to completely destroy any consumer debt you have while never incurring any additional consumer debt. With that in mind, does it make sense to have no funds available for unexpected emergencies?

If an emergency pops up that you have to pay for immediately and you’ve spent every penny you have paying off your debt, how would you pay for that emergency?

You’d have to incur more debt to pay for your emergency. That’s exactly what we want to never happen again.

You might want to argue that it doesn’t matter if you incur just a little bit more debt for the emergency because, in the end, you’ll still pay less in interest by not having an emergency fund.

That may be true for the most dedicated debt destroyers. For the majority of people, you’d probably be wrong. Why? Because paying for your emergency with more debt breaks all of the good habits you’ve practiced since swearing off consumer debt for good.

Once you break out the credit card just one time to pay for your emergency, you remember how it feels to swipe the card and not have to immediately pay for the purchase you just made.

This is dangerous territory for anyone who has gotten into serious debt. You don’t want to take any chance of relapsing into your old consumer debt incurring ways.

The small emergency fund will allow you to pay for most emergencies with cash. This will keep you from breaking out the credit cards and it will prevent you from taking the chance of relapsing into debt incurring bad habits.

What happens when you use some of the emergency money? Simply pause your extra debt payments and rebuild the emergency fund to your desired amount. Which brings up a great question. How big should your small emergency fund be?

How Much Is A Small Emergency Fund?

The amount of your emergency fund should be specific to your personal situation. Some people with very few expenses could probably get by with an emergency fund as small as $500.

If you have a more average budget, I’d probably go for about $1,000 to $1,500 on the high end. Of course, if you’re seriously worried about debt relapse, the absolute most I’d recommend is one month’s worth of expenses.

The key when deciding on the amount of your emergency fund lies in how expensive some of the unexpected items would be for you.

If you got into a car accident, what is your auto insurance deductible? If you had a medical emergency, what is your health insurance deductible? If you have a car that’s slowly biting the dust, how much do you think it’d cost to get your car running again?

Try to think of the possible emergencies that would prevent you from your goal of never going into more consumer debt again. Then, choose an appropriately sized emergency fund.

Just remember, only choose a number big enough to get by. You don’t want a ton of money sitting in cash only earning 1% or less when you have credit card debt interest racking up at 20% or more.

You don’t need to have an emergency fund large enough to cover big emergencies like job loss yet. If something that significant happened, you’d have much bigger problems than trying to pay off your debt as fast as possible.

Once you’ve paid off your consumer debt you can work on building your emergency fund to a larger level to cover these types of emergencies.

Don’t Use Your Emergency Fund For Fake Emergencies

One last note about the small emergency fund you’ll be building. Don’t use it for fake emergencies. Doing so is just as bad as incurring more consumer debt. Finding a great deal on a vacation or an item you’ve been wanting forever is not an emergency.

An emergency is only something that threatens your life, your health, or your wealth. A broken-down car that can’t get you to your job threatens your wealth. A car with a broken air conditioning system doesn’t.

Know the difference and don’t use your emergency fund on fake emergencies.

Now it’s time to learn about the different debt pay off methods. We’ll start with the debt snowball method.

Everything About The Debt Snowball Method Of Paying Off Debt

We’re finally ready to discuss one of the potential methods to pay off your debt.

Now that you’ve changed your money mindset and your money habits, you just need to pick the method or combination of methods that will work best for you.

Let’s get started with one of the most popular debt pay off methods, the debt snowball.

What Is The Debt Snowball?

The debt snowball is a term that was popularized by personal finance guru Dave Ramsey. It’s really simple to follow and that’s why so many people have had success with it.

Essentially, you take your list of debts that you owe and order it from the debt with the smallest balance owed to the largest balance owed. As you always should, you’ll make the minimum payments on every debt you owe.

The key is that any extra money you have left will all be paid toward your debt with the smallest amount owed. This will result in getting rid of some of your debts quickly and give you the motivation to continue your debt pay off journey.

Once you pay off your first and smallest debt, you’ll take all of your extra money and the original minimum payment from that loan and use that money toward your debt with the next smallest balance.

Continue rolling these amounts over as you eliminate loans and the amount of the payments you’ll be making will increase. Eventually, all of your consumer debt is gone. Then, if you want, you can attack your mortgage, if you have one.

If you haven’t picked up on the metaphor yet, as you pay off each debt the amount of money you’ll apply to the next loan you’re paying off will increase, much like a snowball rolling down a hill.

Pretty cool, huh? While this method is psychologically motivating because you’ll be paying off individual debts quickly in the beginning, it isn’t the mathematically optimal way to pay off your debts.

The mathematically optimal way is called the debt avalanche, which we’ll discuss next week. For now, let’s just focus a bit more on the debt snowball and the pros and cons of this method.

Debt Snowball Pros

  • This method is really easy to follow. It doesn’t involve making any decisions other than the decision to follow the debt snowball methodology.
  • You’ll pay off your first debt pretty quickly. That will give you the motivation to pay off the next debt faster.
  • As you pay off each debt quickly in the beginning, you’ll quickly begin to see the size of the payment on your smallest debt (your debt snowball) grow which is very encouraging.

Debt Snowball Cons

  • The debt snowball is not the mathematically optimal way to pay off your debt. You could end up paying off a 0% car loan before you paid off a 25% credit card loan if the car loan had a smaller balance.
  • The debt snowball can oversimplify your debt situation. In reality, there are other factors to take into account when deciding which debt you should pay off first.

As you can see, the debt snowball method has some great benefits but it has its flaws as well. If you’re majorly overwhelmed and just want to see some solid progress, this method might be best for you.

However, if you’re a more logical person who doesn’t need to see a psychological payoff early on in the process, you might want to consider another debt pay off method.

Everything About The Debt Avalanche Method Of Paying Off Debt

Now that you know the details about the debt snowball, which offers a psychological boost in your debt pay off journey, it’s time we discuss another debt pay off method.

The second method I’d like to introduce is called the debt avalanche.

How The Debt Avalanche Works

The debt avalanche is very similar to the debt snowball method of paying off debt, with one major change.

Instead of paying off the loan with the smallest total balance first as the debt snowball method states, you’ll instead pay off the loan with the highest interest rate first.

The debt avalanche is seen as the logically optimal way to pay your debt off in the quickest manner possible.

By paying off the loan with the highest interest rate first, you’ll lower the amount of each payment that is applied to interest at a faster rate than you would with the debt snowball.

Each payment will result in more and more money being applied to actually paying down your principal, or the amount of debt that you owe.

If this is the quickest way to pay down your debt, you might be wondering why people advocate other debt pay off methods other than the debt avalanche. Let’s take a look at the pros and cons of this method.

Pros Of The Debt Avalanche Method

  • The debt avalanche will pay your debt off in the fastest manner possible.
  • You know your money is being put to the best use in your debt pay off journey.
  • You could save a ton of money in the long run by picking the debt avalanche over the debt snowball method.

Cons Of The Debt Avalanche Method

  • The debt avalanche can result in you waiting a long time to pay off your first loan. This can be a huge psychological blow.
  • People are emotional beings. Emotions can throw you off the path of the debt avalanche.
  • The difference between the debt avalanche and debt snowball may be minimal for your particular debt situation.

As you can see, the debt avalanche has financial advantages, but if you can’t stick to the plan then you might get yourself in trouble.

The debt avalanche is more advantageous when the loans you owe the most on have the highest interest rates. If your highest interest rates are on your smallest balance loans then it doesn’t make as big of a difference.

Now that you understand both the debt snowball and debt avalanche methods and their pros and cons, we’ll discuss the other options you have when choosing a debt pay off method.

Create A Customizable Debt Pay Off Plan That Fits Your Needs

Everyone’s debt situation is unique.

That means that not everyone’s debt pay off plan will fit perfectly within the debt snowball or debt avalanche methods.

If you’re in that situation, that’s perfectly fine. Instead, you can create your own customizable debt pay off plan.

Don’t try to force yourself into a mold that simply won’t fit your situation. It doesn’t make sense to set yourself up for failure.

Instead, take the good from each method and add your own twist to make a plan that will work for you.

Not Every Debt Situation Is Straightforward

When we were formulating our debt pay off plan we realized that paying off debt isn’t as simple as picking the debt avalanche or the debt snowball. 

There were more factors to take into account. Granted, our debt was a simple scenario because were only trying to pay off student loan debt.

First, some of our interest rates were variable while others were fixed. The other issue we had was some student loans were federal loans while others were private loans.

So how did we formulate our customized debt pay off plan? First, we figured out which debt was the worst offender of the bunch.

This was easy because our worst loan had the highest interest rate, was a variable loan and was also a private student loan. Next, we attacked that loan with everything we could throw at it.

It took many months before we had to start paying off our next loan. All we had to do in the time between picking our worst loan and completely paying it off was ensure that another loan didn’t because more urgent before we paid off the worst offender loan.

Luckily for us, nothing changed, but if it did, we’d simply switch which loan we were aggressively paying off.

Once we had our first loan paid off, we looked at our situation and figure out which loan was the next worst offender and aggressively paid it off. We then continued this process over and over again until all of our student loan debt was vanquished.

Some Variables To Consider When Formulating Your Plan

There are many different types of debt out there, so it is important you fully understand your debt situation. One key is knowing whether your debt is secured debt or unsecured debt.

Your debt is considered secured if took a loan to buy a car, a home or another large asset that you put up as collateral.

Your debt is considered unsecured if you simply signed your name to a loan, such as a credit card, a personal loan or a payday loan and didn’t offer any collateral.

What difference does it make? If you quit making payments on a secured loan, you can lose your car, your home or whatever other assets you secured the loan with.

If you quit making payments on unsecured debt such as a credit card, personal loan or payday loan, then the company will have to sue you and get a judgment in order to garnish your wages or force you to pay.

Either way, you should do your best to always pay your debt back and not make late payments.

Another factor to consider is the fact that there are debts with special treatment. Student loans and tax debt are two types of debt that are very difficult to get rid of.

Many people advocate paying these debts off quickly due to the fact that more extreme measures can be taken to collect on these types of debt. The government can take your tax refunds and garnish your wages to collect on these types of debt.

It is also important to know which of your loans have variable interest rates. As interest rates rise, so will your rates on your variable debt.

Most credit cards have variable interest rates, as well as some private student loans along with many other different types of debt such as adjustable-rate mortgages. Fixed interest rate debt will not change the interest rate as rates rise or fall.

You’ll have to look at these variables and figure out which ones are the largest threats to your debt pay off plan. Figure out which loan you think is the worst offender then get started with your extra payments.

The faster you start paying debt down the faster you’ll pay it all off.

Grow Your Income To Kick Your Debt Payoff Into Overdrive

We never would have been able to pay off my wife’s $80,000 in student loan debt as fast as we did without following the simple concept we’re about to discuss.

After we had changed our mindset and cut our expenses back to the minimum we were willing to accept, there was nothing more we could do to reduce our expenses.

If we quit there, we’d have a fixed time period that it would take to pay off our debt.

It could never get any shorter.

If things popped up, then it could take longer, but we could never pay the loans off faster without making more changes.

Most people quit after they reduce their expenses. Reducing expenses is the easiest thing to do, but the easiest things rarely reward you the most. It’s the harder things in life that have the best rewards. This tip is no different.

Instead of focusing on lowering your expenses more, you need to shift to earning more income. The best part about this tip? You have unlimited potential to earn more income.

Start Growing Your Income Any Way Possible

There are a million ways to grow your income.

You can pick up some overtime shifts or find a part-time job that allows you to work nights or weekends. You can start a small business selling goods on eBay or Etsy. You can sell a service to people in your community.

The number of ideas on how to earn extra income are endless.

Most people immediately think of earning more income from overtime or a second full or part-time job because that is what they’re taught to think of. Once they realize most of these jobs pay $10 an hour or less, they get discouraged and quit.

It doesn’t matter how much extra income you earn in the beginning. The simple fact of hustling to earn more to pay off your debt faster will get the creative juices flowing.

Even a $10 an hour part-time job on nights and weekends can significantly speed up your debt pay off plan.

Start A Side Hustle

However, if you don’t want to settle for a $10 an hour job, I don’t blame you one bit. Rather than working for someone else, starting your own side hustle can be much more rewarding both mentally and monetarily.

There are many businesses that you can start with little to no money upfront. You’ll need to go with one of these businesses because you won’t have any extra money during your debt pay off program.

Some of the best types of low-cost businesses to start are service-based businesses. I got lucky when I started my blog. For less than $50, I had everything I needed to start. Of course, at the time I had no clue I’d make money with it.

Other types of service businesses include pet sitting, walking or grooming, lawn care, fixing lawnmowers that won’t start, cleaning services, cooking services, coaching and tutoring.

You might have to get started by working for free to get reviews, but once you have just one happy customer you can start growing your business.

The best part about extra income is that it doesn’t have to stop once you pay off your debt. If you find a side hustle that you love, it could even turn into your main income one day as my side hustle did with this blog.

Need help coming up with a side hustle? I’ve compiled over 130+ side hustle ideas for you to check out.

Use The Extra Income To Pay Your Debt Down Faster

The key thing to remember about this extra income is that you’re earning it to pay your debt off faster. As soon as you get a paycheck or a payment from a client, you should deposit it in a bank account earmarked solely for paying off your debt.

Just make sure you account for taxes owed on the extra income first.

Don’t co-mingle your extra income with your other money, or else you might be tempted to spend it. You’ll be shocked by how much even a little extra income can shorten your debt pay off journey.

How Extra Income Helped My Wife and I

Extra income played a huge role in our journey to pay off my wife’s $80,000+ of student loan debt. My wife ended up picking up some extra overtime shifts at work that paid very nicely. I ended up turning my cheap hobby into some pretty nice income here on my blog.

Without this extra income, I’d say we’d easily have to spend a couple more years paying down debt. Instead, we’re student loan debt-free. It was totally worth the time to earn extra income.

The next step after earning extra income is to make some massive changes.

Big Changes Lead To Massive Payoffs

I bet you’re excited that you’ve been able to make a plan of which loan to pay off first.

It’s even more exciting when you start to see the progress you’ve made from changing your mindset and making some small changes in your financial life.

I have some even better news, though.

Now it’s time to start making some big changes that can completely transform your debt pay off plan and speed up the process immensely.

Big Changes Will Have The Largest Impact On Your Plan

Small changes are a great way to start shifting your mindset. Those changes will get you excited as momentum grows in your debt pay off journey.

Unfortunately, there are only so many small changes you can make before you run out of ways to save a few bucks here and there. That’s when it’s time to bring in the big changes.

Many people resist these big changes, but the magnitude of how they can change your debt pay off plan can be huge. Don’t immediately dismiss these ideas as crazy.

Many people have made these changes and have made amazing progress because they were open-minded enough to embrace big change.

Sell Your New Fancy Car

Chances are you have a newer, fancy car. You probably have a car loan to go with it. Yuck, that’s more debt you have to pay off. Want to know a quick way to get rid of that debt and get further ahead in your debt pay off journey?

Sell the car and pay off the loan. Am I insane? Not at all. A car is for transportation. It should not be a status symbol. Yes, you may need a reliable car to get to work and run errands around town. I totally agree with you.

However, you can easily find a car that will meet those needs for $5,000 to $10,000, rather than the $30,000+ that some of the fancier cars and SUVs cost today.

What about all the money you’ll lose by selling your brand new car? It’s a fact of life, but it is a sunk cost. Sunk costs are decisions you made in the past that you can’t change. You can’t make decisions based on sunk costs.

You’ll never get that money back whether you sell the car today or 3 years from now. It’s gone. The only difference is you’ll lose even more money as the car gets older.

With $5,000 to $10,000 cars, you won’t lose anywhere near as much money to depreciation each year. Just think how nice it’d be to have a much smaller car loan, or even no car loan at all.

Is all of that extra debt worth your fancy ride? You might even save money on your car insurance due to the lower value of your new to you $5,000 to $10,000 car.

Downsize Your House

Housing is normally the largest category in any budget. If that’s the case in your budget, then it’s also the largest opportunity to make a dent in your debt pay off.

Americans have grown accustomed to huge homes with a ton of rooms that they rarely use for anything other than storage or allowing someone to sleep at your house once a year. Why pay for all of that extra space you never use?

Just like with your car, you can downsize your home, too. Whether you simply move to a smaller, cheaper home when your lease runs out or you decide to sell your home to move to a more appropriate dwelling, this is possibly one of the biggest wins you can ever score.

Whatever you do, make sure that you think this through for a long time. If you just end up upgrading again shortly after you downsize, you’ll have wasted a ton of money moving and real estate fees if you own your homes.

Move To A Different Area

Want to save even more money on housing and potentially everything else in your budget? Consider moving from a high cost of living area to a low cost of living area. Where you live has a huge effect on how much money you spend every month.

I personally moved from the rat race driven metro area of Washington, DC to the Florida panhandle. It is one of the best decisions I ever made.

I was lucky enough to keep a similar salary and almost all of my living expenses cost less in Florida. Plus, there’s no income tax. It was a huge win for us and it saved us thousands of dollars.

Get A Job That Pays You What You Deserve

Your income from your job is one of the biggest limiting factors in your debt pay off plan.

Due to the massive constraint income places on your plan, you should look to optimize your income as much as possible. If you’re being underpaid for your skill level, now is the time to see what you can do to raise your income.

You can ask for a raise if you’ve shown you deserve one. If that doesn’t work, you can always look for a new job that pays you in line with your skills and abilities.

Just be careful not to burn any bridges in the process. Your current income is a lot more than you’d get if you pressed the wrong button and got yourself fired.

Big Changes Aren’t Easy

I’m not suggesting that any of the above changes are easy. They aren’t. They shouldn’t be. Just keep an open mind and seriously consider them.

These actions can save or earn you thousands of dollars a year that you can use toward your debt pay off plan. Once your debt is gone, it can kick start your savings and retirement, too.

Don’t simply dismiss these ideas without giving them serious thought. The biggest changes offer the biggest rewards.

You Paid Off Your Debt… What’s Next?

After going through the process of paying off your debt, you’ll eventually be debt free.

It’s a great feeling to finally be rid of your evil debt.

Don’t forget that feeling for one second.

You worked long and hard to get to this point. Cherish it.

Before you celebrate too much, there’s one thing you have to remember.

You’re not out of the water yet.

There is still a ton of work left to do after you’ve completed paying off the debts you wanted to eliminate.

You Made Big Changes – Don’t Let Them Be Temporary

You likely had to make some big changes to get to the end of your debt pay off journey. Some of them were extreme but temporary measures. However, I’d venture that a majority of the changes you made were good permanent lifestyle adjustments.

If you immediately go back to how things were before you started your debt pay off journey, you’re just going to end up back where you started in a few months or years.

Wouldn’t it be a shame if you worked so hard to pay off all of that debt, just to end up in the same exact position again? I know I would be devastated if that ever happened to me.

You need to keep the momentum moving in the right direction after you’ve paid your debts off.

You Can Add Some Things Back

It’s okay to add some things back into your monthly spending that you had cut back on but examine every item with extreme scrutiny.

Does this spending make my life better? Do I value what I’d be spending the money on highly? Does spending this money help me reach my long-term goals?

If the answers to these questions are yes, you may be able to responsibly add some spending back.

You might notice that you now really enjoy dining out every once in a while. However, if you make it a habit and dining out turns into eating out multiple times per week, it won’t feel as special anymore.

I’m all for enjoying life. Just don’t fall back into bad habits. They could become a permanent part of your lifestyle again.

If you had cut back on your shopping for entertainment budget, do you really miss buying things that likely ended up hanging in the closet forever after only being worn a couple of times?

I’m guessing once you broke the habit, all of the window shopping wasn’t really something you missed anymore. Make sure you still evaluate each purchase to see if you really need it or if it is a want.

Have a process in place to make sure you don’t return to those credit card swiping days that led to maxed out credit cards you couldn’t pay off.

Don’t Quit Earning Extra Income

Earning extra income was a key to our debt pay off success and we didn’t quit simply because our debt is gone.

Your extra income may lead to even bigger opportunities than your main income source one day. My blogging side hustle became my full-time career.

Of course, if you just got a part-time job delivering pizzas, you might want to consider dropping that if you don’t enjoy it. However, if you started a side business or have found a side gig you’re passionate about, don’t give it up.

Now that your most painful debts are gone, you have more options than ever.

Paying Off Debt Wasn’t A Goal

Paying off debt is a milestone in your life, but it isn’t the ultimate destination. Why is this important? You should still be working toward your actual financial goals now more than ever.

The money you once dedicated to destroying your debt is no longer obligated to paying other people back for your past purchases. It’s now available for you to move further along with your life goals.

Unfortunately, some of these life goals, like retirement, are so monstrous that we don’t even see them as goals. Instead, we see them as insurmountable challenges.

Channel Your Debt Money Into Bigger Goals

Instead of increasing your spending or quitting your side gigs, channel your debt repayment money into goals that matter to you.

Is your emergency fund in good shape? Are your retirement accounts where they should be? If the answer is yes, good for you. 

Just make sure all aspects of your financial life other than debt are in good shape before you start increasing your spending again. Getting out of debt is just step one on a long journey to financial independence.

You’ve worked hard to change your financial lifestyle. This is just the beginning. Continue to live responsibly. If you do, money worries may soon be a thing of the past.

Focus on big goals. Don’t forget about your retirement. Keep pushing yourself down the path to a better financial future.

What do you plan to do with your debt money once your debt is paid off? I’d love to hear your plans in the comments below.

Brice Matheson

Friday 16th of December 2016

Amazing article! I think that paying your student debt should be just like ripping off a band-aid - just get it over with. Have a 2-4y span of frugal living and be done with it.

Lance Cothern

Friday 16th of December 2016

That's exactly what we did!


Tuesday 20th of October 2015

Hi Lance, Just found your blog! It's an excellent resource. Sometimes it's difficult to honestly look at your finances (keeping your head in clouds seems momentarily easier) - I know a lot about this. How do you make drastic cuts when you have kids and incidentals (braces, private school and medical bills) keep cropping up?

Lance Cothern

Monday 26th of October 2015

If you've cut your expenses as far as you can, then the other side of the equation is making more money. You might have to sacrifice time to make more money, but once the debt is gone you can cut back down to your normal levels.


Wednesday 15th of April 2015

What if you don't have enough money monthly to make extra payments?

Lance Cothern

Wednesday 15th of April 2015

Angie, not having enough money is one of the hardest things to face. If you've already cut your expenses to the bare minimum, the only other option is to make more money. You can try selling things around the house, starting a side hustle or working more hours at a job that pays hourly to make more money. You could also try to find a better paying job. Good luck to you.

Rethink Retired

Thursday 8th of January 2015

Very helpful piece, it's important to know the challenge in order to conquer it, and lining up debts, rates, and due dates in a spreadsheet is the perfect way to do it. The best part is? You can hopefully watch that number dwindle every month =)

Lance Cothern

Thursday 8th of January 2015

Watching the number dwindle is awesome.

How to Pay Off $80,000 in Student Loan Debt in Less Than 3 Years

Wednesday 2nd of April 2014

[…] I have a ton of tips to help people pay off their debt. In fact, I started writing a series about how to get out of debt when you have no clue where to start on my blog. Feel free to check it out. A couple of quick tips that greatly helped us in our […]