Serious about Becoming Debt-Free?

People are always claiming to be serious about becoming debt free, and then out they go and drop $3 on a coffee, $30 on a book, $60 on a new pair of shoes. The little things we spend money on may improve our lives for the time it takes to consume them, but they do nothing for our long-term goals. If you’re serious about becoming debt free, you can do it. But you have to have a plan.

Step One. Put Snowballing to Work. List your consumer debts (not your mortgage unless you’ve done a mortgage consolidation for debt) from most expensive to least expensive, noting your interest cost, your total debt and your minimum payment amount. You might have something that looks like this:


  1. Buy-now-pay-later         32%            2100             84
  2. Department Store CC        28.8%          700             28
  3. Department Store CC        28.8%        1200             48
  4. Credit Card                       18.9%        3000            120
  5. Credit Card                       14.9%          400              16
  6. Student loan                     11.6%      13700            548
  7. Car loan                            10%         25,000           650
  8. Personal Line of credit        9%         15,000           112
  9. Second mortgage/Consol   8%         28,000           212
  10. Home Buyer’s Plan              0%         18,000           100
  11. Family                                 0%            2,800               0

The idea of the list is to prioritize where you’ll make your payments. You’ll start at the top, with your most expensive debt. (I know some people like to start with their smallest debt, but that’s not efficient.) As that’s paid off, you move to your next most expensive, all the while making the minimum payments on everything else so you stay in good standing with your credit history. Each time you move down the list, you’ll snowball. You’ll add the payment you were making to the most expensive debt you’ve just paid off to the next most expensive that you’re about to tackle.

Step Two. Start today. Like eating smart, exercising and everything else in life that takes discipline, the number one cause of Not Doing It is PROCRASTINATION. You have to wait until your next pay period. You have to wait until you know you have some extra money. You have to wait… and wait… and wait… How’s that working for ya? Any closer to being debt free? Nope? Well then Start Today. 

Step Three. Make a budget. If you don’t know where your money is going, you don’t stand a hope in hell of being debt free. You have the tools on this site. Go to the Gail’s Budget Worksheet and make a budget that balances. The amount you put in for debt repayment will equal the total of all your minimum payments.

Step Four. Cut back. Go over your budget with a paring knife and trim out all the non-essentials that are sucking away your money. How much did you come up with? Do it again. Now how much do you have? Do it again. And again. You want that budget to be so tight it squeaks. You’re going to add whatever you’ve squeezed out of your budget to the payment on your most expensive debt. So if you managed to squeeze out another $300 from your budget, you add that $300 to the minimum payment on the first loan on your list.

Step Five. Make a payment. Don’t wait for the due date. If you owe money it’s always due. And the faster you make a payment, the quicker you turn off the interest clock.

Step Six. Every penny counts. Start carrying a notebook around with you, and whenever you save money on something, write it in your notebook. When you get home that night, make a payment of however much you’ve saved that day against the debt that’s at the top of your. Now you’ve put what you saved to good use, as opposed to just spending it on some other crap.

Step Seven. Every penny counts, repeated. Scour your house for all your change. And every time you empty your pockets of change, add it to your change pot. At the end of every month, deposit it to your bank account and then immediately use that money to make a payment against your most expensive debt.

Step Eight. Sell stuff. Have you heard? Less is the new more! Go through your home, room by room, and choose two things you can live without. Have a yard sale, list things on craigslist or eBay, or sell things through a consignment shop. You might not get a lot for whatever you’re selling, but whatever you get is money you won’t have to pay interest on. Apply that money to the debt at the top of your list.

Step Nine. Make More Money. You knew it was only a matter of time before I got here, right? You have no time to waste if you’re in debt. Turn your time into money in whatever ways you can.

Okay, that’s the plan. Now it’s up to you whether you implement it or not. If you choose not to, you can’t whine about being in debt. Nope. You’ve made your bed and now that it’s full of flees, you’ve only the dog in the mirror to blame!

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36 Responses to “Serious about Becoming Debt-Free?”

  1. Great advice as always! This is completely doable it just takes a lot of discipline, but definitely worth it 🙂

  2. Ive been doing many of those steps already, nice to see them in black and white.

    I’ve been taking extra stuff down and selling it at the flea market. That money I’ve been putting in the jars, and then taking the extra money and making larger payments to CC.

    I’d love to know your opinion on transferring balances from one CC (Sears) to a lower interest one on one of those “no interest for 6 months” things. In the LONG run, is it better to leave the sears card alone, and just pay it off?

  3. Gail — I know you touch on this but I would think snowballing seems to be most effective if you tackle the smallest debt first, and then move on to the next smallest? Mathematically you’ll lose money, but this is one of those circumstances where I think math has to give way to emotion (and as you know, I’m a math guy) but it has its limits. Paying off the most expensive works well if the debt amount is small, but imagine if your most expensive was a credit card with $32,000 on it. That’s a long time and a lot of payments before you can snowball anything. It’s easier, and more ‘do-able’ to pay off a small card first and then move that to your snowball. In addition to being motivating, it means there’s less chance of missing a min payment date and seeing interest rates jump.

  4. I have followed all of those steps that Gail just listed, all thanks to her advice. 🙂

    But I agree with Geoff, I’m currently working on my smallest debt, not my most expensive. I am aware it’s costing me a bit more in interest, but it feels good to know that I’m going to have a PIF coming sooner, rather than later!

  5. Its great to have all these steps on paper , I have printed it out n am putting it on the fridge, closet door, etc.. just in case I slip up or an idea strikes where I might be able to pare down some more.

    Self dicipline is tough but darn near impossible with teens in the house. There is always something they absolutely need(want). But u can circumwent – get them involved. I have my oldest selling stuff we do not need online(Craigslist, ebay) n we split the money with him and he saves that money towards his laptop(one less item we have to pay for) and we convinced him to look at something cheaper than a Macbook Air. Still sometimes its tough, like those boots that r too small or falling apart?N the everything ele jar is empty? What does one do then?

  6. Jennifer: transferring your balance to a lower-cost form of credit is a great idea, as long as you cut up the card you’re transferring from.

    Geoff: If you have a huge balance on your most expensive form of credit, then you’re nuts! You need to do whatever it takes to get that cost down. For as long as it takes to pay off that balance, you’re bleeding interest.

    MadeMistakes: Do the calculation that show how much interest you’ll have ended up paying on that most expensive debt by not putting your back into it, and then tell me you feel good about having paid off that less expensive debt first.

    Geeta: If you need more money than you have… drum roll please… Make More Money.

  7. Geeta – need new boots, ask on Freecycle! its not just used things, people have new items they bought and never use, its good for the environment too.

    I was thinking to snowball starting with paying off the lowest debt first, for the reasons mentioned here, the emotional benefit of seeing Paid in Full. Then I found a minimum payment calculator online and that scared me right out of that idea! and my CC debt is small right now compared to most, so if you have a 32,000 debt thats even worse i think

  8. Geeta – boots falling apart? Get ’em repaired. This is a tip I have repeatedly used to save money on footwear… I spend $10 to get my shoes fixed up and don’t have to buy new ones! As a matter of fact I’ll be heading out to do this tomorrow as I noticed a hole in a heel of my shoe today.

  9. Paying debt with greatest interest first: You will be done with ALL your debt sooner because you will be paying less interest.

    If you need emotional gratification beyond knowing that you will be done sooner and your are willing to take more time and spend more money to repay your debt:
    – pay the minimum on all debts regularly and calculate the total of minimum payments;
    – calculate what’s left in your debt repayment budget (after paying the minimum) and put 75% of that towards your debt with the biggest interest and 25% towards your debt with the lowest balance.
    This way your will achieve both goals.
    However, I agree with Gail’s repayment system and it is what I use.

    Balance transfer:
    Search this website! If you transfer a balance to a new credit card and you use the credit card, payments will go towards the 0% transfer BEFORE going towards your new purchases (28-32% rate). Do not use the credit card (for cashflow or reward programs) until all cash advances and balance transfers are payed off. Read the fine print in the contract.

  10. Hi Gail,

    This all makes sense, but I do have a question. If your consumer debt is all on 0% interest cards, how do you rank those? Start with the one that starts accruing interest soonest? And pay all CCs before student and car loans, even though those have interest rates attached? That makes the most sense, but I wanted to clarify.

  11. I had a yard sale last year to sell off all my baby stuff as I am not having anymore children and I made $900.00 in a couple of hours. By not putting these things away and then deciding to sell them years from now when they are old I made much more money and didn’t have them cluttering up the house as well.

  12. Gail hi — first, overall message of paying off debt, super great. Love it. Never stop.

    But my comment was just that humans don’t always do what’s best for them according to the math involved.

    For instance, if you have two credit cards, one at 18% with $3,400 on it and one at 14% with $1000 on it, I suspect that it’s easier and more rewarding to pay off the $1000 first. Even though its better to pay the 18% off one first, I just think that the type of person to accumulate any consumer debt in the first place likely lacks the discipline to see the payment of $3,400 all the way through and $1000 is an easier challenge. Your mileage may vary.

    Not trying to get off topic, but it also explains why I took a 25 year mortgage instead of a 35 year mortgage. Mathematically, I’m more likely better off if I take the monthly payment I don’t have to make on a longer term mortgage and invest it in the stock market (It’s true, there are lots of posts on this subject) especially given the cheap price of stocks right now and once you factor in 30+ years of dividend payments. However, I know how tempting it might be to just let that extra money just be spent, so prefer to view our mortgage as a forced saving plan.

  13. avatar Anna McLain Says:
    October 27, 2008 at 1:37 pm

    Love the suggestions.

    About paying as soon as you have the cash despite the due date–I had a problem before by paying a line of credit at a credit union early. Seems if you paid more than two days before the due date it was counted as an extra payment, but NOT as the payment due then. So I was getting late fees for paying early because the computer said I missed the scheduled payment. And the Customer Service reps were rude enough to fight me about giving back the fees even though they said they could see the payment made “at the wrong time.”

    I adore your show! I try to watch as often as I can. I’m tired of feeling like I’m on a sinking ship and want to buy a house of our own. Thank you so much!

  14. Gail, ever notice the people who argue against the logic of paying off the highest interest rate first also talk about gratification? Perhaps it was that instant gratification that got them into the mess they’re in. Too bad they can’t see logic over emotion.
    George Monbiot says “Tell people something they already know and they will thank you for it. Tell them something new and they will hate you for it.” If they want to listen to the ones who advocate paying off the lowest balance first, then go for it. Why argue with you?
    I love what you do for people both on the show and with your own free time. You are truly making a difference and not contributing to the noise. I was very sad to read you are going through a divorce but was happy when you said 16/18 years was great. You continue to carry on that positive attitude of yours and I hope you both can have an amicable divorce.

    Love and hugs…

  15. avatar Anonymous Says:
    October 27, 2008 at 3:51 pm

    I agree with Dianne. Why do people have to argue?? It’s annoying. If people don’t agree with what you’re saying and have found something that works for them – then that’s great. What you’re saying isn’t the be and end all of debt repayment, you’re just trying to guide people who would like the guidance.

  16. Marie and Geeta – both of you provided good tips for keeping motivated. Here is one of my own: make a collage using cut-up old magazines. You can cut out pictures and glue them to a piece of bristol board or cardboard – I save cardboard from calendars and other pieces of packaging for this reason. Make it a pictoral, symbolic representation of what you want your life to look like when you are debt free. It could include pictures of physical objects you wish to have (like a house, car) but could also include pictures of people or scenes that are powerful symbols – find pictures that represent freedom, peace, serentity, and empowerment. This collage can remind you every day of what you are working so hard for.

  17. Quite a dialogue here!
    The message Gail is sending is terrific, and any high interest debt is a menace in your life.
    If you want to talk about gratification, think about how pleased your high-interest lenders are that you want to put them off! You are rewarding them for charging more simply because you owe them more, so they will TAKE it for every penny at any chance they get.
    I get myself revved up and angry at the NERVE of them to demand that much, and when I am angry, I am pro-active to make it disappear faster!
    (Once, I sold my car so that I wouldn’t have to pay a cent of interest on my computer loan when the term came due!!! A used car was easy for me to replace not-so-much the money they wanted to gouge from me).

  18. I’m up to Step 7 and a half. I have a few more things I want to get rid of. According to a dream I had recently I should be looking a new job. In the dream, about a dozen ladies, me included, were having a special luncheon with Gail as guest of honour. She took of us aside for a minute to disperse personal advice – she told me to get a new job. Good advice, which my subconscious obviously already knew, but I would appreciate it if Gail stuck to this website and the television, and kindly stayed out of my dreams! 😀 The resume is getting updated, I promise!

  19. Thanks Gail! I needed this kick in the butt- I put my head back in the sand for the past couple of months. Just pulled out all the paper and I’m getting sorted out tonight no matter how much it hurts!

  20. I’m at Step 7, and stuck there. (Step 5 doesn’t really apply, I have mortgage debt, not consumer debt. So paying CCs on the due date doesn’t incur any interest)

    Step 8: I don’t buy stuff. I really just don’t. I laugh sheepishly when the charities call for clothes pickups – I wear my discount Ts and jeans until they have holes in them… I wouldn’t inflict them on anyone by the time I’m done.

    Step 9: I just can’t make myself do this. I have a lot of free time, and I treasure wasting every minute of it! Bad, I know. I guess I don’t really feel the urgency enough – I don’t have any consumer debt, just the mortgage. I do hate the mortgage but… I wrestle with it sometimes.

  21. Jay: I want you to stop beating yourself up. You have chosen to live simply in exchange for your free time. As for your debt, since it is not consumer debt, you can relax. Do you know where the term “mortgage” came from? “Mort” = death; “Gage” = commitment. So a mortgage is supposed to take some time to pay off. People get my debt free message all mixed up. I’m all about getting rid of your consumer debt; the debt you acquired from spending more money than you earned. And I’m all about setting a timeline for eliminating all debt. But life is too short to focus only on the elimination of debt to the exclusion of happy. You’re fine. Relax. Enjoy! G.

  22. I want to apologize to Gail and clear one thing up – I am not arguing with her logic that the highest interest debt goes first. I agree 100% that is the smartest way to go. And to clarify, the debt that I am currently working HARD at is the only credit card debt I have, and therefore the highest interest. And I am working hard – working overtime at my full-time job, working a part-time job, calculating the difference from my upcoming raise – all these extra amounts are going to it, in addition to a regular weekly payment well above and beyond the minimum required. It’s just that the one that is being paid off quicker (secondary to the first one) than some others is a lower interest rate. I’ve made this choice due to personal issues at the time.

    Anyway, I really didn’t mean any disrespect, and I’m sorry if I offended her or anyone else – I admire Gail greatly and owe a lot to her advice.

  23. I too want to clear up that I’m not disputing Gail’s logic, just acknowledging that humans don’t always act logically, and that some emotion must then logically be accounted for; here’s where the idea motivation (not gratification) comes in. Or as Mr. Spock would say: Humans are… most illogical. MadeMistakes, sounds like you’re doing a great job and are on the right track in my opinion.

    But I’m not going to apologize for having a different opinion and broaching this in a respectful and even-handed manner in an attempt to provoke further discussion and dialogue.

  24. Thanks for the kind words, Gail. Occasionally I can be overly goal- and guilt-driven. The goal part is fun, but the ‘you could be doing more’ guilt or ‘geez some people make do with so much less’ guilt not so much. The obvious solution would seem to be volunteer work.

    It’s interesting, because my parents used to tell me, “You can’t control your income, but you can control your spending.” Watching TDDUP, though, I see that you CAN increase your income! (To be fair to the parents, they now tell me to spend more on fun.)

  25. Yep I agree. You can increase your income and control your spending for maximum bang.

    I was 60k in debt 2 years ago, now I will have a projected net worth of $80k at the end of this year ($70k in cash that I will allocate to retirement/savings etc).

  26. So this is the only post I’ve read on this blog, so take this for what it is worth: I don’t this blog is about helping people but about the author talking about how great her approach to life is. Heaven forbid anyone disagree and offer an alternative that works better for someone else. I would ask why bother with comments, but then I realized that perhaps the author of this blog also needs the *gratification* that comes from people agreeing with her (and also being rude and snarky to anyone who dares disagree).

    \While I agree that paying off smaller balance over higher interest is illogical, so is beating someone over the head with advice that is more effective when unconditionally offered.

  27. @ Jessq — though I’m not sure you’ll read this I’ll respond for the benefit of others. I personally don’t think that Gail needs anyone to agree with her, and that most people who were disagreeing with me and a few others on here (or upset because I did disagree) were doing so “on her behalf” which isn’t really a reflection of Gail herself. Gail so far has been quite open with her thoughts and has her position and has never censored or not published my comments (unlike some blogs, ie greatr fool).

  28. Debt Free Life Is The Key To Your Financial Freedom. Debt Free Life Is One Of The Most Experienced Debt Settlement Companies In The Country. If You Are Accepted Into Our Debt Elimination Program And Follow Our Simple But Comprehensive Debt Negotiation Program Steps, You Will Succeed.Debt Free Life Is A Debt Settlement Company Focused On Debt Reduction, Debt Help, Debt Relief And Debt Elimination. Call Us Now, To Be Debt Free

  29. In the bad old days before ‘Til Debt I would only look at two things on my credit card statements. The available credit limit and the minimum payment amount – and the only reason I was even remotely interested in the available credit limit was because that figure let me know just how much more room I had for spending before I hit the wall and had to ask for an increase.

    In the days leading up to sanity we had several a-ha moments. One of the biggest ones was the day I discovered that cute little line on the credit card statement where they actually tell you the amount of interest – in dollars!! – that they are charging you for that month.

    I always thought of my credit cards by their percentages. My Visa card was 12%. My MasterCard was 17%. My Sears card was 28%. Therefore the Visa and MasterCard were the good cards and the Sears card was the evil one.

    Percentages led me astray because they just didn’t click into my reality. After all if the good people at Visa were only charging me 12% that works out to just 12cents on the dollar and who can’t afford 12 cents? Well apparently we couldn’t when we were paying 12 cents on $15000.00. Doing the math showed us that 12% was a basic $1800.00 a year or $150.00 per month. Just in interest. Not even including paying for the actual stuff we had purchased.

    The first time I read “Interest $150.00” I had to go and get a magnifying glass to re-read it because I thought that my eyes were playing tricks on me. Big mistake. $150.00 is bad enough. $150.00 (to the power of 10) is unbelievably depressing.

    But this discovery changed our lives and led us out of and way beyond our normal debt repayment lethargy.

    The first thing that I did was to set up our Budget Sheet with a line just for credit card interest. Treating the interest as an expense and debt all of its own helped us to keep our eye on the ball. It truly is shocking, yet amazingly motivating, to see how much more the stuff you bought is costing you – simply because you didn’t wait for cash but borrowed the money.

    From that day forward we made every minimum payment (and hey! Did ya know they actually have a line on the statement that tells you when you are supposed to make the payment?) plus whatever interest was charged for that month. That way – in our warped little minds – the minimum payment was going to pay down the principle while the interest payment was paying the interest. I know it doesn’t really make any sense. I don’t know why the splitting of one amount into two amounts in your head makes you feel so good. All I know is that it does.

  30. I’m so glad I found this site! I’ve loved Gail’s show for years and I’ve done my best to if not get out of debt completely, I’ve certainly knocked it down considerably. I have a question though…

    In Gail’s budget builder and worksheet she states that 15% of my net income should go towards debt repayment, however in her calculations she includes car loans in the transportation costs which equals another 15%. Does this mean the 15% debt repayment is on top of my car loan payment? But then in the blog above she includes car loans as a debt.

    My question is this, do I include the car loan in the 15% debt repayment or not, because this would make a huge difference in the amount of money that I will be putting onto my debt. Instead of $600 a month it would be $1000. With a net income of $4200 a month, this seems excessive.

  31. SophieW, the car loan goes under “transportation”. The mortgage goes under “housing”. Everything else goes under “debt repayment”. Car loans are a debt, but they are a “transportation” debt not “consumer” debt. I could break it out further for student loans too, but then things get so complicated that people just give up, so this was the simplest I could get (I think), but you can customize your own budget to make it sing for you… that’s the beauty of a budget. Keep in mind that if you have no car loan, your transportation percentage will likely go way down, leaving more money for things like LIFE — FUN!!! —. Ditto if you have no consumer debt. Have a happy new year.

  32. Let me return here once again.We this way blog 🙂 Love Serious about Becoming Debt-Free?

  33. I have just spent over an hour reading through thsi website and I have to say it is one of the best sources of information on debt I have ever seen (and I have searched through many of them!). I am working my way through what started as about $30 000 worth of debt, some of that was a student loan, and some of that involved bad unplanned big purchases. I am now down to 18 000, and can almost see the light at the end of the tunnel. Working with a budget each month does feel a biy restrictive sometimes, but overall, nothing compares to the great feeling of making big lump sum payments to this debt. I hope I can stay on course and see it through (hopefully only one more year!). Thanks Gail for all of you words of advice, I can see you have motivated many people to take control of their lives and have hope for the future. I do have one question though, do you recommend keeping savings low in exchange for paying debts sooner? My ‘cushion’ is usually around $1000 but it has allowed me to make much bigger payments on the debt.

  34. I’m a senior professional in the financial services industry. Gail’s website and blog may be the best source for individual financial well being on the internet. Common sense as exemplified and applied here will make everyone a better individual.

    People approach me very regularly about investment advice and my suggestions are very simple. Budget. As a general rule don’t use debt to purchase anything other than a house, vehicle or education. If you have debt, pay it down. Pay it down as fast as you can. Stop the small purchases that suck cash out of your jeans. If you need a vehicle, buy a used reliable car instead of new sexy one. Better yet, move closer to transit and get rid of the car.

    Take care of your health both physical and emotional. Educate yourself and your children.

    After you have done all that come see me and I’ll explain how to invest for yield, growth, safety or gains or invest in ETFs, strips and zero coupons, currencies, commodities etc.

    Spend and invest like my immigrant parents and you’ll do fine.

  35. It’s very frustrating when people don’t follow your advice and still drink $6.00 lattes, even though they are in debt. I think that if they are not serious about paying off their debt, then they should have their credit cards, debit cards and luxuries seized and live only on cash. If they want their cards back, they should work with someone who can help them get out.

  36. Hi Gail – i have a question: Today is budget day in our house – we have 3 girls that are grown and “gone” and 1 teenager left at home. Hubby and I are wanting to get serious about our planning.

    So…you often refer to a pie chart with different breakdown percentages for budget. I would like to see a general “ideal” one if there is one so that we can see if we are close to where we should be or way off!

    Any help in locating this would be super – thanks a bunch!

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