Step by step guide to paying off debt

There was a period in my life when I loved having credit cards. I thought the more credit cards I had in my wallet, the cooler it looked. I remember having three credit cards at one stage and was spending a ridiculous amount of money that I didn’t have.

I was one of those idiots who always brought in a good income but couldn’t manage to save a cent.

My mentality was, “It’s ok to put things on the credit card, because I’ll pay it off in the next couple of months”. I would spend money that I didn’t have until all three of my credit cards were maxed out. I’m not going to lie; I’ve lost loved ones because of my bad financial habits.

One good thing has come from this however: I’ve learned from my mistakes.

It’s not that I didn’t have good financial knowledge.

The issue was I simply didn’t have the discipline to stick to a budget. The day I decided to get my finances together was the day I changed my life forever.

If you are reading this, I assume you have debts and you want to pay them off. Let me just put this in your mind before we go and further: the number one trick to paying off your debt ASAP is discipline.

Number two is letting go of your bad financial habits. If you can achieve these two things, I can guarantee that you will come out on top.

Before starting to pay off your debt, there are few things you need to do.

Firstly, write down the reasons you want to be debt free somewhere you will see it: a piece of paper on your fridge, a note in your wallet, anywhere you think is best.

Don’t try to keep it in your head. This is about setting your goals and having the right mindset before you start.

One day, if you feel that it’s too hard and decide to give up, you can always read these notes and remind future you why you decided to do this in the first place.

Trust me, it’s not going to be easy, but the changes you make today will benefit you forever.

Once you’ve set your goals, you’ll need to work out your budget. The fact of the matter is: if you can’t stick to a budget, you’re not going to be able to pay off your debts.

Budgeting is where you learn financial discipline. If you are married or you have a partner, make sure you include them in this process.


Because I want you to feel guilty every time you think of going back to those bad spending habits.

I remember it was extremely difficult for me in the beginning, but when I realised how important these changes were, not just for myself but for the people around me, I started looking forward to a better future.

That was the exact motivation I needed to keep at it.

Write down your expenses using the below table as an example. What you need to write down is the total amount you owe, plus the interest rate.

When you write down your expenses only write down the minimum payment required as your repayment.

There are two different methods to help you accelerate the speed of paying off your debt.

Also Read: 4 Money decisions you will regret later

The Avalanche Method – Debt in the order of highest to lowest interest rate

This strategy is also known as debt stacking. You’re going to start paying off your debts according to the interest rates – highest to lowest.

Is this the right method for you?

The avalanche method is best for you if you are patient, disciplined and can understand the benefits of the method through mathematics.

The Avalanche Method might seem like it takes longer to pay off individual debt, but the debt as a whole will be paid off much sooner because you pay the least amount of interest on your purchases.

How does it work?

Step 1: 

Note down all your debt as per the table below.

Credit Card 1$ 300018.9%
Credit card 2$ 800022.5%
Car Finance$ 223005.5%
Personal Loan$ 1200012.9%

Step 2:

Call your credit providers and try to negotiate a better interest rate. The interest rate they offer you cannot be higher than the rate you’ve got right now. You’ve got nothing to lose by making this phone call.

The best way to do this is to call the bank and ask to speak with someone who is authorised to bring your interest rate down. The conversation with this person might sound like this:

YOU: Hi my name is Don. I’ve been looking at my options with other banks to do a 0% interest balance transfer for my credit card. I’ve been a loyal customer for a long time with your bank so I would like to keep my account with you. What is the best interest rate you can provide me to keep my business?

With a conversation like this, it’s a sure thing that you’re going to be able to negotiate a better interest rate with your bank. Make sure you do this with all your credit providers.

Step 3:

Always make sure that you make the minimum monthly repayment for all your debt. If you check your credit card statement or the personal loan statement you will see the minimum payment required to avoid the late fee.

Step 4: 

Put as much extra money as possible toward the account with the highest interest rate. If you get paid weekly, pay your debt weekly rather than monthly.

This way the annual repayment you make will be higher than making monthly payments.

Just make sure that the bank doesn’t charge a transaction fee every time you make a payment. If we use the table above, Credit Card 2 will be the debt that you will pay off first.

Step 5: 

Once the debt with the highest interest is paid off, you’ll free up more money to put towards the next debt. Start paying as much as you possible on the account with the highest interest rate.

Since you’re tackling your debts in order of interest rate, you’ll pay less overall and remove yourself from debt faster.

It might take a while before you see the kind of results that will motivate you. But if you keep at it, your debt will tumble away like an avalanche.

The Snowball Method – In the order of smallest to highest debt amount

With this method, you focus on your smallest balance first, irrespective of interest rates. Once the first debt is paid off, you then focus on the account with the next smallest balance.

Imagine rolling a snowball down a hill. The longer it rolls, the faster it picks up more and more snow.

Each conquered balance provides you with more money to help pay off the next one quicker. When you pay off your smallest debts first, those paid-off accounts will also build up your motivation to keep at it.

I personally love this method. You end up paying off your first debt much faster than the avalanche method. Every time you pay off a debt you will feel more driven to pay the next one even faster.

There is a big possibility of increasing your credit rating with this method as well, because you pay off your credit cards faster.

Please note that it’s imperative that you follow step two below to organise a better interest rate before going ahead with this method.

How does it work?

Step 1: Write down all your debt.

Credit Card 1$ 300018.9%
Credit card 2$ 800022.5%
Car Finance$ 223005.5%
Personal Loan$ 1200012.9%

Step 2: Call your credit providers and try to negotiate a better interest rate (refer to the Avalanche Method above).

Step 3: 

Ensure that you continually make the minimum repayments on all your accounts.

Step 4: 

Work towards paying off your lowest balance first. Put as much extra money as possible toward this account.

Step 5: 

Once the smallest debt is paid off, take the money you were putting towards it and direct it towards your next smallest debt.

Continue the process until all your debts are paid off.

I really have to stress the fact that you MUST stick to these methods for the debt repayment to successfully work.

It may not seem like you’re gaining any headway straight away, but you WILL see results eventually, I promise you that.

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