Step #1 – Cut spending, make more, or both!

Cut spending to the bone

First, you absolutely must stop digging the debt ‘hole’ deeper: Set up the BTF banking system. You absolutely MUST create more income than your expenses + taxes. There’s no other way to whittle down your total debt permanently. Anything else is just a shell game of moving debt around from one place to another.

Get serious about high interest debt

If you have high interest debt (> 10% interest rate), I highly recommend you cut all/nearly all unnecessary spending temporarily until you’ve paid off that debt. The interest you save alone will let you splurge more AFTER that’s accomplished.

Immediately pause as much discretionary spending as you can bear to: use up the food and other stuff you have at home. Sell something you don’t need to get cash. Defer purchases. Eat, drink, and entertain at home instead of going out. Tell your friends you’re on a ‘spending diet’ for the next month as a way to refuse expensive invitations. (Or counter with a cheaper option.)

Use the library to entertain yourself and cut out your paid subscriptions. Don’t get depressed: most of these changes can be temporary (if you want them to be) once you pay off all your high-interest debt.

Spending $1,000 today on, say, a new laptop will cost you $300 extra at 30% credit card interest rates vs using that $1,000 to pay off some credit card debt today vs waiting to upgrade your computer a year from now. Would you rather have a new laptop now, or a new laptop + $300 a year from now?

Use these three articles for specific recommendations on how to cut your spending.

Earn more

Can you make more money? Apply for a better job. Ask for a raise or promotion (or at least have the conversation about what it will take to get one in, say, 6 months’ time.) Take on a side hustle like a small business or gig work to earn extra, and put ~100% of those earnings to debt payoff.

Earning more and spending less are two sides of the same coin: more take-home pay after your expenses that can go to debt payoff (and later to building wealth!)

Step #2 – Gather info & automate payments

Record the key info on all of your debt

Write down all your balances, interest rates, and minimum monthly payments. To get these, create online accounts for each of your debt accounts. Your statements will also have your interest rates and your balances, but online is better. Enter all these balances, interest rates, and minimum payments into a spreadsheet like this one that you can copy.

Set up autopay for the minimum balance

Once you’re logged in, set up autopay for the minimum amount due on ALL of your debt accounts: credit cards, student loans, personal loans, medical debt, etc. Even IRS debt can have a payment plan created for it. Autopay means you’ll never miss a payment and pay even more fees, and it frees you up to prioritize where your extra cash can go to pay down the highest-interest cards first.

Set due dates for first week of the month

Change all your due dates to the 3rd – 5th of each month so that they get paid right after your rent/mortgage as part of your banking system. Almost all credit cards let you do this; just search their sites for ‘change due date’.

0% APR periods

Make sure to note any 0% APR periods, and what happens once those end (does all the interest you would have paid come back with a vengeance all at once? Or is the credit card more generous in allowing you to just start accumulating interest at the end of the 0% APR period?

Step #3 – Debit card for all optional spending

Choose one card to use for recurring (only!) bills

Pick your lowest rate card, or a 0% APR card if you have it, to keep using ONLY for any recurring charges like subscriptions you’ve decided to keep, utilities, insurance payments, etc. Set up autopay to that credit card for all of these accounts as well.

It’s ‘allowed’ to use a credit card so long as you only put stuff you can’t overspend on. If you’re nervous about using any credit cards, you can instead schedule all your individual bills to autopay on a debit card, or direct ACH, from your checking account. Try to set the dates to be the first week of each month if you can so that all your ‘must pay’ bills are taken care of up front for each monthly spending cycle.

Stop using all your other debt accounts entirely

Take all your credit cards except for that one and literally freeze them, as described here. (Do the other things listed in that post as well. Come back here after you’ve read it.)

Leave your one main credit card at home, or freeze it too, since it’s ONLY for recurring expenses, not for random spending. Stop using your other credit cards or debt accounts. Do not cheat on this. You have one card to use in an emergency if you must, so keep some credit limit available on it. No store cards for perks, or Costco card for gas, etc UNLESS that’s the one card you chose to use for recurring expenses.

Make sure to remove your credit cards from all electronic accounts where you could be tempted to spend money, replacing it with your debit card if you must: Amazon, Venmo/Paypal, other online retailers.

You could even get cash and put it in envelopes for eating out, in-store purchases, to really emphasize spending a fixed amount per that category per month.

Actually freeze your credit so you can’t open more

https://www.usa.gov/credit-freeze

Step #4 – Reduce your monthly interest charges

While it’s important to free up cash to pay off your debt, that takes time. While you ‘wait’ for this to happen as income flows in to pay down debt, you need to try to reduce the total amount of interest you are paying on all your debt.

Every dollar of interest you must pay is a dollar you won’t have to actually pay the debt principal off.

Now that you know your balances and rates, you can easily calculate how much each balance is costing you in interest every month. We want to drive that number down so that more of the money we put towards debt goes to actually paying it off instead of just keeping up with the extra interest charges.

Credit card balance transfer

Many credit unions offer 0% APR cards on balance transfers + new purchases for a full year, AND with no transfer fee. (Most for-profit cards charge 3-5% of your transferred balance in fees. Yuck.) BECU has one such example that you can apply for, and talks more about balance transfers and debt consolidation.

You also want to make sure interest is not ACCRUING during the 0% APR phase so that you don’t get surprised if you’re unable to pay off the balance in full at the end of 12 months.

Debt consolidation

Navicore is a reputable, low-fee, non-profit debt consolidator that negotiates reduced rates with your creditors. This will negatively impact your credit, but that may be totally worth it! After all, credit generally only matters when you need a loan: so if you have a car/will pay cash for a used one and aren’t gonna buy a home anytime soon (how could you, with all your debt!?), best to get the debt paid off fast.

Be very wary of any for-profit debt consolidator. Check all fees and terms. I personally would ONLY trust a non-profit company like Navicore for debt consolidation.

Other high-interest debt consolidation

Personal loans, like this from BECU for up to $30 K: Apply here after creating BECU account.

Family loans?

Do you have a family member that would be willing to front you the cash to pay off high-interest debt while you switch your repayments to them instead? This would be a win-win for all involved as long as you have the banking system in place so that you know you can accelerate your payback to the family member.

Family loan gift tax considerations (likely NOT applicable for you!)

For large, longer term loans for those worried about IRS gift tax implications, here’s info on the IRS’s loan rates that won’t count as a ‘gift’:

https://www.irs.gov/applicable-federal-rates & https://www.investopedia.com/terms/a/applicablefederalrate.asp

Step #5 – Pay off debt ranked by highest-interest rate

Once you’ve cut your spending/earned more, automated your minimum payments, and reduced your interest costs, it’s time to just keep plugging away at your debts until they’re all paid off.

Start with the highest-interest credit card first, and focus all extra cash about your minimum payments + other spending needs towards that. Make lump sum payments aggressively as your income piles up, including any emergency sources of cash that you already have.

Shouldn’t I keep my emergency funds? No!

It makes no sense to earn a few percent in a bank account while paying 25% on a credit card. If you have an emergency, most expenses can just be put back on the credit card, leaving you no worse off. If you have five grand in savings, and five grand in debt, you need to have $0 in savings and $0 in debt instead.

Here’s the math: $5,000 at 4% in the bank = $16.67/month in interest. $5,000 at 20% on a credit card = $83.33. Net loss to you is $66.67/month, which is $800 a year, from keeping those emergency funds in cash instead of paying off the debt with them. (And then of course, you have $5,000 in open credit limit on that card IF you had a true emergency that required you to run up $5,000 in debt again.)

Step #6 – Never let it happen again

Once your high-interest debt is paid off, change your auto-pays to the FULL balance for each payment cycle. This is the only way, combined with the banking changes you already made, to ensure you never go back into debt.

After that, boost your 401k contribution and start building wealth per my blueprint, or contact me for how to work towards financial independence.