Debt Reduction Plan: get out of debt faster

A Series on Paying Off Debt

debt reduction plan, plan to pay off debt, how to pay off debt

Our society has fallen into the illusion that debt is a way of life. We spend outside our means, with the “assistance” of high interest loans and credit cards, thinking our lives will be better based on the material things we are able to accumulate and throw away. We set up lives based on lies, always buying bigger and better than our neighbors and friends to project false happiness and “success” based on the scale of our debt. We have almost unlimited availability of funds that we can’t really afford to convince others of our “wealth”.

This “wealth” is only an illusion; it is actually accumulation of debt. It does not bring happiness, nor does it bring fulfillment. The farther we venture down the road of debt, the harder it becomes to get out of the mountain of debt we build. Worse yet, most of the material things we have purchased with our debt are gone long before they are paid off. The interest, combined with making minimum payments on credit cards and loans, cause balances to build exponentially while the products end up in a heap of trash. The debt payments we are forced to make as a result of our irresponsible spending cause financial burden and many begin to purchase consumption goods, like food and gas, on credit cards as their wallets tighten.

Living off debt is living out of control. Feeling hopeless in your financial state causes depression, uncertainty, and stress. Financial insecurity puts entire families in jeopardy. To the contrary, financial responsibility is freedom. Being in control of your finances brings much more satisfaction than any material goods ever could. The amazing result of following the debt reduction plan is having all of those debt payments in your pocket every month. Instead of having to finance more furniture or pay for clothing on credit cards, you will be able to pay in cash, as you have an abundance of expendable money without all the monthly payments you used to make on debts. You can easily save up for the products you buy, never having to acquire debt again.

Paying off debt is not only the first step in taking control of your finances, it is also the first step in taking control of your life, your happiness and fulfillment. The following is a proven debt reduction plan to help you accomplish your financial goals. If you are ready to pay off debt and willing to make the necessary sacrifices to do so, follow this step-by-step debt reduction plan to financial freedom.

So if you are serious about paying off your debt and are willing to make the necessary changes, here is what you need to do.

Step 1: Make a list of all of your debts in order of smallest to largest balances.


Debt Account Current Balance Current Payment
Sunny Day credit card $2500 $50
Rainy Day credit card $3000 $130
Speedy car loan $5000 $250
Beautiful Home mortgage $100,000 $1,000

Step 2: Evaluate Your Expendable Cash

Paying off debt requires focusing on one debt payment at a time. While you are working on that debt account, you will be making minimum payments on the other debt accounts. The money saved by making minimum payments on all other accounts will be applied to the principal balance of the focus account. For example: If your Rainy Day credit card minimum payment is $50 but you are currently making a payment of $130, you will apply the extra payment of $50 to your focus account. This is crucial to following the plan and paying off debt faster. If you are currently only making minimum payments on all your debt accounts, don’t worry, you can find expendable cash in your budget below.

Rainy Day C.C.: Current Payment $130 – Minimum Payment $50 = Extra money $80

This is a little trickier. Start with your “extra” money, like the cash you can afford to blow every month. Let’s say you spend $100 shopping at the mall each month for fun. Now comes the harder part, figure out what you can cut out of your current lifestyle. Think about the Starbucks coffee you buy everyday on your way to work, totaling $50 a month. Then there’s your super tv package that cost $250 per month or your hair highlights that cost $175. Wait, I know you’re thinking you need all of that. But if you really want to get out of debt, you need to make a commitment to cutting back and using that cash for debt reduction.

$80 (Extra Payments) + $100 (Shopping money) + $250 (tv) + $175 (highlights) = $605 Expendable

Wow, congratulations! You just found the light at the end of the debt tunnel!

Step 3: Put Your Expendable Cash to Work for You in a Debt Reduction Plan

Start with your lowest debt balance and start making extra payments every month in the amount of your expendable cash. Write down a debt payment schedule and stick to it. Here’s what it will look like:

$50 Current Payment + $605 Expendable Cash = $655 New Payment

Apply your expendable cash payment to your first focus account each month until you have paid off your balance.

Month/Year Debt Account New Payment Balance
July 2016 Sunny Day c.c. $655 $1845
August 2016 Sunny Day c.c. $655 $1190
September 2016 Sunny Day c.c. $655 $535
October 2016 Sunny Day c.c. $535 $0

Congratulations, in just a few months, you paid off a debt account!

Step 4: Calculate Your New Expendable Cash

Sunny Day Saved Payment ($50) + your expendable cash ($605) = New Expendable Cash ($655)

Now let’s apply that New Expendable Cash to your next debt account.

Month/Year Debt Account New Payment Balance
October 2016 Rainy Day c.c. $60 + $120 = $180 $2820
November 2016 Rainy Day c.c. $60 + $655 = $715 $2105
December 2016 Rainy Day c.c. $715 $1390
January 2016 Rainy Day c.c. $715 $675
February 2016 Rainy Day c.c. $675 $0

Wow, congratulations! You have now paid off two of your debts! You are well on your way of getting out of debt!

*Editor’s Note:  It is important to note that the account balance on your auto loan or credit card will be different from the balance you started with back in July 2016.  For example, your Speedy car loan balance was $5000 back in July 2016.  If you had been making $250 monthly payments for 6 months, you balance would actually be closer to $3500 when you begin to apply new payments to it in February 2017.  Since everyone’s situation will be different, this debt reduction plan uses the figures only as an example.  You should adjust the balance appropriately to reflect your true principal balance before you begin paying off a new debt account.*

Continue applying your saved payment ($60) + current payment ($250) + expendable cash ($655) = New Expendable Cash ($965) to your next debt.

Month/Year Debt Account New Payment Balance
February 2017 Speedy car loan $250 + $40 = $290 $4710
March 2017 Speedy car loan $250 + $60 + $715 = $1025 $3685
April 2017 Speedy car loan $1025 $2660
May 2017 Speedy car loan $1025 $1635
June 2017 Speedy car loan $1025 $610
July 2017 Speedy car loan $610 $0

Congratulations! You have paid off another debt!

Continue applying your new debt payment forward until all of your debts are paid and you are finally free.

Take the week to start mapping out your debt reduction plan. Follow the examples above to make a detailed payment schedule that you will follow each month until you are free of debt and on your way to financial responsibility. It is important to stick to your plan and only differ if you are in a real emergency situation. You must also stop using your credit cards while you are paying off debt. Refer to our discussion of needs and wants and live as lean as you can while you are paying off debt. Remember, it is not for forever. Once you pay off your debts you will have a substantial amount of money in your pocket every month.

You could be out of debt and living a life of financial stability before you know it. Change your mindset and stop chasing the idea that more stuff and bigger things will make you happy. Living in debt is not living at all.

Check back next week for an article on staying out of debt. It will inspire you to pay these debts off and stay out of debt forever! If you have questions about any of the above, please leave a comment below and we will be happy to help you.  Do you have a debt reduction plan success story to share?  Please share your success as inspiration to others!

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