The Ultimate Debt Payoff Plan

March 10, 2012

Despite the abundance of guides and courses littered across the Net that are willing to tell you how to pay off credit cards fast, for a fee, of course, the best thing you can do to get out of debt is to stop spending money.

So, put your card away, and read through the following tips to learn the best way to pay off credit cards:

  1. Track your monthly expenses to find out where your money is going. Regardless of the type of debt you’re trying to pay off, the first step to financial freedom is figuring out where you’re actually spending all of your money – you’ll be surprised at the amount of frivolous things you’re buying once you actually see your purchases written down on paper. Ideally, you should track your spending habits for at least a month.
  2. Create a plan and write it down. Sticking to a debt payoff plan is hard enough, and the worst thing you can do is try to keep track of it in your head. Instead, take some time and write down the steps that you want to take. For instance, now that you know what you’re buying, write down where you can eliminate unnecessary spending, like fast food and movies, and list out your debt according to priority. Make sure you keep your written debt payoff plan where it’s easily visible so you can look at it when you need motivation to keep going.
  3. Make sure you have an emergency stash before you start. Before you start trying to pay off your outstanding debt in large amounts, you should always make sure that you have some money to fall back on in case of an emergency. In most cases, $1000 is a good goal to shoot for; however, it depends on how many people are in your household. Of course, this doesn’t mean you should skip any payments while you’re creating an emergency fund – otherwise, you’ll just fall further behind. However, it’s okay to pay the minimum payment while you’re creating your cushion.
  4. Start with the small debts first. The biggest reason most people fail to accomplish the debt payoff plan they create is because they lose the motivation to keep going – especially if they aren’t seeing any progress. In an effort to combat this, make sure you’re paying off some of the smaller bills first so that you can see your debt actually start to disappear. There’s nothing more disheartening when you’re trying to pay off credit cards fast than feeling like you’re just throwing money at an impossible debt that doesn’t appear to budge.
  5. Stick with it. In addition to starting off with reasonable goals, sticking with the plan you choose is truly the best way to stop debt from piling up. The only way that you’ll accomplish paying off your loans and lines of credit is by continually moving forward.

When you’re looking for the best way to pay off credit cards, it’s very important to avoid falling back in to the trap of paying for unnecessary expenses with a credit line. Additionally, if you’re planning on shifting debt by taking out a loan to pay off credit cards, make sure that you have a plan in place to pay off the new loan, as well. The worst thing you can do when you’re trying to consolidate your credit card debt into a single loan is to neglect reading the terms of the new loan. If you aren’t careful, you may end up finding yourself locked into a loan that has a higher interest rate and a balloon payment a few years down the road.

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  • Modest Money March 10, 2012 at 4:59 pm

    Yeah I have a hard time accepting the common advice of building up an emergency fund when in debt. I guess it would have psychological benefits of getting you off the habit of putting stuff on credit. Still, it seems that you would end up paying more in interest that way.

    I do agree with all the other tips though. Writing it down is very important as it holds you more accountable. As for paying off smaller debts first, the trick is to increase payments on other debts once one is paid off. In some cases it would make more sense to pay off the highest interest debt first.

    • Marissa March 10, 2012 at 7:31 pm

      I get where you are coming from but I have peace of mind knowing that I have a safety net there.

  • MyCanadianFinances March 10, 2012 at 1:11 pm

    I sometimes do not understand why an emergency fund is necessary. (Sometimes! Most times I get it)
    Sometimes I look at how steady my income is, my minimum payments on my line of credit, and how much free cash I would have if I needed it and think that I would be fine without an emergency fund. Does this sound stupid? I know it does haha.

    I will be building up an emergency fund, but AFTER I pay off my debt. My debt situation is not so dire that I am worried if I get hit with an unexpected $600 expense.

    Great tips though! The biggest thing I did was make a plan and write it down. This helped tremendously.

    • Marissa March 10, 2012 at 7:29 pm

      I see where you are coming from but I set up an EF primarily because I wanted to have a back up of funds without incurring any further debt if I got in trouble.

      And writing it down really does make a difference.

    • Michelle March 10, 2012 at 7:29 pm

      We have an emergency fund so that if anything happens such as if we lost our job then we would be covered. It’s not so much for small things. Another thing we use it for it if we needed something for the house. Such as our furnace would cost $6,000 to replace and a roof would be similar.

      • Marissa March 10, 2012 at 7:32 pm

        Exactly! Nicely said, Michelle.

  • Michelle March 10, 2012 at 7:31 pm

    We are definitely starting with small debts first. We will have a $33K in student loans (this is an accumulation from both 2 undergrad degrees and my MBA, so I actually have less because of course I have been paying it off through the years) and then we will start paying off the mortgage after.

    • Marissa March 10, 2012 at 7:33 pm

      I hate my student loans, but thats another post all on its own.
      33k isnt bad for 2 undergrads and your MBA. Great job keeping that under control.

  • Ella March 10, 2012 at 4:26 pm

    Good tips! I have been working on the debt with the highest interest but I understand it’s more motivating to start on the lowest amount first. The emergency fund is very important, it is the thing that will keep you from taking more debt if anything happens.

    • Marissa March 10, 2012 at 7:30 pm


      When I first started I wrote down exactly what I paid in interest each for each debt. This lit a fire under my butt really fast.

  • Daisy @ Add Vodka March 10, 2012 at 11:32 pm

    I think having an EF is so important to paying off debt. Without an EF, an emergency will make you go further into debt. I agree with all of these points!

    • Marissa March 11, 2012 at 7:40 am

      Exactly. I don’t understand how people think that a credit card can be used instead of an EF.

      • MyCanadianFinances March 11, 2012 at 7:46 am

        I believe it depends on the situation. I think I will write a post on my views about this. Seems on this topic I am thinking opposite from the norm.

  • Kay Lynn @ Bucksome Boomer March 11, 2012 at 12:06 am

    I found paying off the smaller amounts first made a difference in my confidence and sense of progress.

  • SB @ One Cent At A Time March 11, 2012 at 2:57 pm

    First of all if you use credit card and do not have debt and continue to follow your good practice of paying off entire amount due at the end of the month, you don’t have to think at pay off strategies.

  • Young Professional Finances March 12, 2012 at 6:27 am

    I agree with these tips – and I also think having an EF is very important! I’m surprised that not everyone thinks so although I’d love to read more about why. For me, it just makes sense – if something happened to my job in the future (or some unexpected large expense came up), I need an EF so I don’t go further into debt.

  • Paul @ The Frugal Toad March 12, 2012 at 1:27 pm

    I agree with paying off smaller balances first and then snowballing payments on the larger balances if you are unfortunate enough to have them. Quicken has a great debt reduction tool that can help you plan your repayment schedule. You also can see the impact of taking these debt payments and investing them!

  • Jai Catalano March 12, 2012 at 1:52 pm

    My only debt other than my kids is my house. Do we sell or hold until a bigger rebound happens? That is the million dollar question.

    • Marissa March 12, 2012 at 6:26 pm

      You consider your kids debt? Jebus…

  • frugalportland March 12, 2012 at 3:44 pm

    Also! Create a way to visually track it — I use Google docs and it’s so wonderful to go in there every month and update, and watch those charts go down to zero.

    • Marissa March 12, 2012 at 6:26 pm

      I use mint and Wave. Its awesome to be my network change.

  • Rafiki March 12, 2012 at 11:00 pm

    Great plan. Stick to these and you are more than certain to get that debt gone.

  • Francis - Investing Epimoni April 23, 2012 at 6:49 pm

    These are the exact steps that we have used 2 times previously to get out of debt. The thing that I have found doesn’t work is forcing your inner child to sacrifice. The reason we have gotten out of debt twice, and not stayed out of debt is that after everything is paid off we binge on spending after sacrificing for so long.

    We are in our third and final round of debt payoff. The reason I know it is the final time we will be on this ride, is that we are going slower and still rewarding ourselves. We set aside a set amount of money for Playing, Giving, trips, buying toys, furthering our education, and retirement. This way all the main part of life are accounted for and not neglected.

    This is going to be a tough journey but at least it will be the last time. We do have a contingency fund of $1000 set aside for things that may come up. I wish the best of luck to those taking this journey.