Personal Finance » Debt

Make a debt plan

“You must walk to the beat of a different drummer. The same beat that the wealthy hear. If the beat sounds normal, evacuate the dance floor immediately! The goal is to not be normal because as my radio listeners know, normal is broke.” – Dave Ramsey

We live in a society where pretty much anything that we want is available to us as long as we have enough credit to pay for it and where carrying consumer debt is an accepted fact of life. Our economy depends on consumers spending money on “stuff” and our financial institutions are making massive profits from financing that spending but when so many people are shouldering increasingly large amounts of consumer debt, what happens when interest rates start to rise?

Many financial experts are warning that, when interest rates start to return to the levels they were at before the markets dropped in 2008, many people will find themselves struggling to make their minimum payment requirements. Debt is a burden that can consume a huge chunk of our monthly expenses and has the ability to seriously hamper our pursuit of financial success. Its impact is not just financial; it can be emotional, physical and psychological too and this is all the more reason to conquer it. It’s time to develop a debt plan.

Related article: Strategies to manage your debt

Take stock of your debt situation

The first step in conquering debt is to take an honest look at your situation so you can develop a debt plan. Make sure that you’re fully aware of the amount of debt that you’re carrying; make a list of who you owe, how much you owe and how much interest you’re paying as well as the minimum payments required on each item. It can be incredibly scary (especially for those with an Avoider money personality) to see the reality of your situation laid out in black and white but it’s important for you to know where you are so that you can put a plan in place that will get you out of debt and keep you there.

Related article: Paying off debts can be one of the best investment you make

Identify your pitfalls

Whatever the reality of your situation is, it’s highly unlikely that you got there overnight and chances are you didn’t get there by accident. Life does throw financial curveballs but often our own habits make bad luck worse. It can be really hard to acknowledge our own role in creating a less than desirable situation but if you don’t take the time to consider which habits helped you dig the debt hole, you’re setting yourself up to repeat them down the road. So many of us have cleared off credit card debt with a consolidation loan, only to find that by the time the loan is finally paid off we’ve managed to run the debt right back up again; we fixed the symptom but not the underlying cause of the problem.

Related article: 5 ways to pay off credit card debt

Taking an honest look at our situation, understanding the spending habits that lure us into debt and the influence of psychological factors such as our money personality, financial thermostat and limiting beliefs means that we can put a plan in place to avoid repeating the same mistakes. In doing this we dramatically increase our chances of getting out of debt and staying that way.

Know your cashflow

If you’ve read my posts before then you’ll know that I’m a big fan of giving your money a purpose. Being aware of all the money flowing into your life and making sure that every dollar has a purpose is a great way of reducing the chances that your hard-earned money will drift away and become shoes or a new sweater. If you’re serious about getting out of debt you have to know how much money you can commit to conquering your debt each month and what percentage of any extra money that comes in will also be committed to debt elimination. Taking some time to create a money management system will help you keep track of your spending, identify areas where you can reduce your expenses and give you a tangible way of monitoring your progress. It doesn’t have to be complicated (simple is usually best) but having a system will help you enormously in getting to where you want to go and helping you stay on track.

Make a debt plan

There are a number of strategies for conquering debt and a number of Advisors and non-profit agencies who can help with credit counseling and budgeting. I’ve used Dave Ramsay’s “Debt Snowball” concept with several clients and have found it to be simple and effective. All you do is arrange your debts in order from smallest to largest. You pay the minimum payment on each debt every month and then put every dollar you’ve committed to ‘debt-busting’ against the smallest debt until it’s paid off in full. Then you ‘snowball’ the debt-busting dollars plus the amount of the minimum payment you were making on the debt that’s paid off and apply the money to the second smallest debt. The more of your debts you pay off, the greater the amount of money that you’re applying so by the time you get to the biggest debt you’re paying off a significant chunk each month and it gets paid off sooner.

The most important thing about the plan you choose is making sure that it will get you to your goal, after that all you need to do is to commit to working it. Just because debt is a fact of life in the world we live in doesn’t mean that we have to buy in to carry it. Living debt-free is a key factor in building wealth and retiring happy and the sooner we start, the happier we will be.

Do you have strategies for conquering debt? Are you committed to a debt plan that’s working for you? If so, let me know, I’d love to hear about it.


  1. Jane Savers @ The Money Puzzle

    $19,800 HELOC debt which may not seem like a lot but I don’t make very much money.

    I am putting 30% to 38% of my net on the debt each pay period and it will take 2 more years to pay off.

    I work on a zero budget. Every penny is allocated to a bill, debt or a savings account and as soon as my pay is deposited I send the money away to the different accounts and leave enough money in my chequing account for gas and groceries.

    The zero budget allocation list is posted on my fridge for all to see.

  2. Maria @ Money Development

    Hi Sarah, thank you for this article.
    The Snow Ball method didn’t work for us as they wouldn’t negotiate the change of the monthly payments to higher amounts as we wanted. We started with extra payments every month, but they charged even more interest so we stopped.
    (please do not fall into the debt trap)
    So now we are setting some extra money aside every month, just saving to pay the smallest debts first.
    Then we will try to negotiate for the bigger ones.

  3. Kevin Donaldson

    Hi Sarah, thank you for this wonderful article..

    Also, This book will help you understand about financial security while building your employer’s dream!! That is the true meaning of business success.

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