The Best Way To Pay Off All Your Debt

Posted by in Budgeting, Debt, Tools

When Andrea and I first got married we paid off $62,000 in debt in 7 months.

Right here, right now I’m going to walk you through how we did it and you’ll soon realize you can do it, too. You’re going to get EVERYTHING you need to get a grip on your finances and break free from your debts.

What would you do if you had an extra $100, $500, or even $1,000+ each month that you DIDN’T have to handover to Sallie Mae or Visa?

How much less stress would you have in your relationships if you weren’t compelled to do stuff you didn’t like just to pay the bills?

What if you were free to do what you wanted, where you wanted, when you wanted?

In less time than it takes to watch an episode of Bojack Horseman or a couple cat videos, you’ll be able to get a grip on your monthly finances, know exactly what to do to get rid of your debts, and how long it’ll take.

Even if you’ve never done a “budget” before.

WARNING: This is going to be longer and more technical than one of my typical articles. 

But if you care about your family’s well-being and you want to open up options that just aren’t available to you while you’re in debt, keep reading. 

You’re going to need to two things to follow along with the rest of this.

First, get this handy tool I built for you. It’ll help you simplify your monthly finances, tell you exactly how to attack your debts, and how long it’ll take you to become debt-free.

Enter your email here to get your copy.

Yes, you could build one yourself. But why go through all that work when I’ve already done it for you? You can change it and customize it later, but for now let’s keep things simple.

Second, go get your last monthly bank statement. If you read What I Learned Getting Lost in Singapore you know where to get this. Your bank either mails this to you or you can look it up online.

When we’re done here you won’t have any excuses not to take action and kill your debts. (Unless, of course, you actually like being in debt…)

Bad news doesn’t get better with time

Time is NOT on your side.

Your debtors make their money by charging you interest. It’s the ongoing fee you pay for the “privilege” of making a decision today and deferring the responsibility (payment). The longer you defer responsibility (payment), the bigger the fee gets and the harder it’ll be to break free from your debt.

It doesn’t matter if it’s “good” debt (college, adoption, mortgage, etc) or “bad” debt (credit card, car loan, etc), the consequences are the same and inevitable. Your debtors will come for their money.

Don’t give away more money than you need to.

Why bother?

Know this going in. Taking control of your finances and attacking your debts will be uncomfortable.

You’re going to take an honest look at your finances, maybe for the first time ever, and you might not like what you see. It’s okay. Lean into your discomfort. Let your situation scare you enough to change it.

My family has a long history of heart disease and I’m medically retired from the military. Not a great combination for me.

Despite my health issues, though, I won’t step on the scale to check my weight after a holiday or vacation. If I’ve pigged out and skipped workouts, I’m sure I won’t be happy with what the scale tells me.

It’s a lot easier to just avoid the scale and keep eating what I want without exercising. But what good will that do me? 

If I want to live a better, longer life than is medically likely I need to face facts, eat right, and exercise.

It’s the same with our finances. There’ll be days you or your partner will think this whole “personal finance” thing is stupid. There’ll be days the challenge ahead of you feels too big. There’ll be days you’d rather just ignore your situation. You’ll need a great reason to push through those days. If you don’t have one you and your partner can agree on, check out this article for help.

Pick up your Shovel and start digging!

Time to take a tour of the tool I built for you.

You already have your copy, right?

It’s a monthly budget spreadsheet with a focus on debt reduction.

I’ve already pre-filled it with average income and debt figures for an average, young American household. As we go through this sheet, personalize it and use your bank statement to update the figures with your own.

In the top left corner, you’ll see what I’m calling Your Shovel until I come up with a better name. Your Shovel is the difference between Your Income (how much money you make in a month) and what you spend each month. It’s what you’ll use to dig your way out of debt.

Shovel, dig, get it? Good.  

IMG_1494So long as you have a positive number Your Shovel will appear green and you’ll be in good shape. If Your Shovel number is negative it’ll turn red telling you you’ve got a problem. A red/negative shovel number means you’re spending more money than you make in a month.

You’re not going to get out of debt if you spend more money than you have. That’s probably what got you in debt to begin with.

The bigger Your Shovel gets, the faster you can dig your way through your debts.

There are two ways to improve the number: make more, spend less. Keep those four words in the back of your mind as we move through the rest of the tool.

Your Income

Just below Your Shovel is Your Income. This is how much money you and your partner get to bring home after taxes, employer sponsored retirement savings, contributions towards your health insurance or other benefits, etc.

Just focus on your take-home pay.

IMG_1495Hopefully you know how much money you and your partner get to bring home in a month. If not, check your bank statement, pay stubs, accounts receivable, etc. Replace “Job 1,” “Job 2,” etc with your jobs and income. As you do, the tool will add it all up for you and update Your Shovel.

What if your income changes each month?

Don’t worry. Andrea and I had a mix of salary, hourly, and irregular pay so our monthly income was always changing. This tool will still work for you, it’ll just take an extra minute each month to update your income.


You need to eat.

You need a place to live.

You need to keep the lights on and water flowing.

You need a way to get to work.

I’ll even be generous and call cell phones and internet access needs. (Notice, I didn’t say premium cable and new iPhones every 6 months) Enter in your Needs, we’ll come back to your wants later.

IMG_1496Notice the order I listed the needs.

Food first, utilities (electricity, gas, water, etc) second, then transportation next, and housing last. When in doubt (especially if your income changes each month), this is the order you should prioritize your spending.

Paying your rent won’t do you a lot of good if you starve to death. Your power company will cut your service quicker than it’ll take for you to get evicted.

Debt Snowball

Have you ever seen a snowball roll down a hill? If you live in New England like me, it’s hard to miss.

It starts off small, but as it rolls down the hill it pick up more snow. It gets bigger and bigger and rolls faster and faster as it does. We’re going to apply this idea to your debts.

IMG_1498I’ve already pre-filled the tool with debts an average American family might have.

I’ve also listed the debts in the order of smallest balance (the amount you owe) to largest balance. Go through the tool and replace what I’ve pre-filled with your debts, listing them in order of smallest balance to largest balance.

Then, fill in each of your debts’ minimum payments (the smallest amount they’ll accept from you each month before they get nasty). 

This is your Debt Snowball, the order you’re going to attack your debts.

You’re going to combine your minimum payment for your smallest debt with Your Shovel amount each and every month until your smallest debt is paid in full. Make sure all the extra money gets applied to the principal. If you’re paying online,  all you probably have to do is check a box for that option.

Pay the minimum amount on your other debts.

When the tool tells you to pay off your first debt, delete your old minimum payment and make Your Shovel bigger (spend less). Each time you wipe out a debt you’ll get rid of it’s minimum payment and Your Shovel will get bigger, just like a snowball rolling down a hill.

Next, look at “Months to Debt Freedom.” Think of this a speedometer. It’s adding up all your debt and dividing it by your minimum payments and your shovel this month. In doing so, it’s telling you how many more months, like this one, it’d take you to pay off all your debts. You’ll also see how long it’ll take to pay off all your debts if all you do is pay the minimum.

In the case of this theoretical average American family, the Debt Snowball has them out of debt in 31 months (~2.5 years), while only paying the minimums would take 145 months (12+ years). 

In most cases the Debt Snowball method is the quickest, most successful way to pay off your debts. You’ll get some quick wins to build momentum and keep you motivated. All you have to do is update your balances each month then pay what the “Pay this month” section tells you to.

Repeat until all your debts are gone.

*If you’ve got a mortgage, don’t include it in your debt snowball. There are some things we need to do first before aggressively attacking our mortgages. 

What about interest rates?

If you’re really nerdy, you might be wondering about interest rates. Sure, you can attack your debts in order of their interest rate, instead of balance, and mathematically it might be better. You might save a bit of money on interest payments, but it’d take longer to pay off your first debt and make visible progress.

If you’re attacking your debts with your partner, momentum and motivation are critical. Odds are your partner isn’t as nerdy as you. Getting some quick wins by knocking out your debts with the smallest balances will help keep them motivated. This isn’t just my opinion, either.

I’m not saying to totally ignore interest rates. If you’re willing and able to refinance your debts to a lower interest rate without spending more in fees to do so than you’d save, then by all means go for it. Just don’t count on refinancing alone to get you out of debt.

If nothing else, use interest rates as a tiebreaker. If you’ve got two debts with similar balances, attack the one with the higher interest rate first. 

What do you want?

We’re almost done.

You’ve updated the tool with your income. You’ve figured out what you need each month and how much you spend on them. You’ve organized all your debts in one place and know the best way to attack them.

But before you get too excited about paying off your debt in however much time the tool says it’ll take you, we need to look at your wants.

Let’s be honest, there are things you and your partner are going to spend money on that COULD go towards paying off your debt. Stuff you don’t need to do, but want to and maybe even should. Yes, the less you spend the faster you’ll pay of your debts. But don’t pretend like you’re never going to hire a babysitter, eat out, or go to the movies.

I hope you’re going out on dates. I hope you’re having fun. I hope you’re giving gifts to each other. I hope you’re building in a bit of fun to your lives. Just because you’re in debt doesn’t mean life has to suck. It’s just a question of how much money you and your partner are willing to spend on things you want.

Figuring out the right balance is a serious conversation you and your partner need to have. While your Needs are going to be much more consistent (and you actually NEED them), your wants are going to fluctuate. The amount you spend on your wants each month will change. It’ll take you time to find the sweet spot that allows you and your partner to live acceptable lives and have fun while still paying down your debt.

This is something only you and your partner can decide. I left your “wants” for last so you can see in real time how each of your decisions affects Your Shovel and your time to debt freedom.

There’s more to handling money than math and this is especially true when discussing your wants. You’ll be discussing what your lives look and feel like and this is where you’re most likely going to fight.

Stay focussed on why you’re paying off your debt in the first place. If you want more help, sign up for my free program to help you talk about money without fighting. This can be a tricky conversation, but it doesn’t have to turn into a fight.

Making it all work

Fill out this sheet and review it with your partner before the start of the next month. Then in a month, review how much you made and spent compared to your plan. Then make whatever changes you want for next month, updating dollar figures/debt balances, and adjusting however you see fit.

As you work through this tool with your parter, keep two things in mind.

First, “make more, spend less.”

Could you make some more money? I bet you’ve got a skill or knowledge someone would pay to learn or have you perform for them. Could you sell something? You’ve probably got something lying around someone else would pay for. Could you spend less by negotiating a better cell phone and/or internet plan?

Second, remember why you’re bothering to pay off your debts in the first place.

What would you do if you had an extra $100, $500, or even $1000+ each month that you DIDN’T have to use to pay debt? Could one of you stay home with the kids? Could you go on that trip you’ve always wanted? Options will open up for you when you don’t have any more debt. Pick some that matter to you and focus on them.

I hope you and your partner will face the challenge of your finances, decide what you really want for your lives, and pay off your debts as you work towards your goals together. Aggressively paying off our debts actually brought Andrea and I closer together and deepened our marriage. We learned how to talk about tough subjects, set goals, and work together to achieve them.

You and your partner can do the same.

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