The Ultimate Guide to Eliminating Debt

Summary: Debt is the number one way to ensure you will not be able to retire and live a free life. Learn how to beat debt in this extensive guide.

I have an extraordinary amount of disdain for debt. 

Debt is a constant reminder that I made some poor financial decision in the past and now I am paying for it in a very literal way. 

You see, debt is unlike most mistakes where you can usually learn from them, adjust and then move one. Debt, instead, is a mistake that is encouraged. The world, in general, does not want you to learn from your mistakes and it damn sure doesn't want you to move on from it. 

Debt is bigger than just bills you must pay. It is a psychological nightmare. 

This guide is meant to not only teach you how to pay off your debt, but also how teach you how to overcome the psychological aspect to having debt.

It is my goal that you will use this Debt Elimination guide to obtain a wide-scale understanding of the debt payoff process.

Step 1: Commit to a debt free life

I didn't say commit to paying off bills or commit to saving money. Those are actions. You are committing to a lifestyle. 

This is the most important and hardest step in this guide.

You must be honest with yourself on this step. If you feel like you still need a new car this year or need to buy some new shoes every month, this guide is not for you. For me, debt had driven me to a point where I really didn't care about anything else but getting rid of it. 

If I had any money left over in the month after paying my bills and purchasing food, it went to bills. I am not here to teach you this robotic way to life. I'm here to tell you that it takes commitment.

I sacrificed a lot of the nicer things in life for over the better part of three years. I don't expect you to be a penny-pincher like me. I just want you to have that same drive I had and then you can decide how hard you want to pursue your own Debt Elimination plan. 

This is how you do it. Take a sheet of paper and on one side write "Goal - Get rid of debt". On the other side write "Things that are important to me". When you have the list done, on the right-side, underline, highlight or circle all the things that are important to you that coincide with your goal of getting rid of debt. Your paper should look like this:




Get rid of debt


Things that are Important to me

  • My family
  • My career
  • Music
  • Football
  • Sleeping
  • Shoes
  • Pizza
  • Excersise

The purpose of this exercise is to put all the things in your life in perspective. You might think that not buying new shoes or eating out will make your life miserable. The truth is you have other things in your life that are important to you that don't cost money. Replace the urge to shop with spending time with your family or spend less on your gas by riding a bike to work. This will enhance your life without spending money.

Step 2: Find your Free Cash Amount in Your Budget

The first step is to add up all your expenses and highlight the expenses that do not coincide with your commitment from step one:

  • Rent - $900
  • Food - $300
  • Netflix - $10
  • New Clothes - $150
  • Credit Card payment - $120
  • Student loan - $150
  • Haircuts - $30
  • iTunes subscription - $10
  • Gas - $100
  • Gym Membership - $30
  • Car loan - $200
  • New shoes - $80
  • Cell Phone - $100
  • Internet - $50
  • Auto Insurance - $120
  • Utilities - $80
  • Miscellaneous spending - $200

Notice things that you do not need. It does not fit with your goal of eliminating debt. In this scenario, there is $480 spent on things that do not fit with your goal of eliminating debt. 

Let’s assume this person takes home $2,900 a month. That means there is only $270 of free cash per month. If that person has no savings, then any expense over that amount means that they must go into debt to cover that expense. A very dangerous way to live. 

Fortunately, you have made the commitment. You are ready to add $480 a month of unnecessary spending to your free cash amount to bring your total of free cash to $750 per month.

This step is easy to do. Open your bank accounts and calculate your free cash amount for the previous six months. Doing this will give you an idea on what you spend your money on and how much cash you can add to your free cash amount. Do this NOW!

Step 3: Build up a Short-Term Emergency Fund

Before you start throwing all your free cash money to your pile of debt, you need to assure yourself that you can handle emergencies without going into debt. 

The way to do this is to save up twice the amount of money that you make each month. In our scenario, the monthly income is $2,900, so our short-term emergency fund should be $5,800.

There you have it. This is your first money goal. Use that $750 a month and build up that savings account. It should take a little less than 8 months to do this. If you are motivated, you can find creative ways to build it up faster. Spend less money, save your tax returns or even pick up a side gig. 

If an emergency arises, for example, you have a tire blow out, don’t fret. Go ahead and take the cash out of your emergency fund and fix your car. You can always replenish that amount the next month. You should always keep that safety net and in our scenario, that magic number is $5,800.

You are committed now. So, step 3 should be a breeze!

Step 4: Start Your debt snowball

You have budgeted your expenses, found your free cash amount, cut your personal costs and saved for your short term emergencies. You are ready to start paying off your debt.

This is the most exciting part of the guide. You have spent almost a year getting to this point. That means you have beaten the psychological pressure that debt had on you.

The first step is to list out your debts. Start with the debt that has the highest interest rates.

Here is what our list looks like in our scenario:

1.       $10,000 Credit Card; 16%

2.       $50,000 Student Loan; 7%

3.       $30,000 Car loan; 4%

This is the order that we are going to pay off your debt. The reason for this is because the interest you pay on your debt can single-handedly stop you from ever paying it off in a timely manner. We want the debt with the highest interest to accrue less than the others.

After you have listed your debt, it is time to put your free cash amount to work. Take your calculated free cash amount of $750 and add that to your minimum payment of your first debt on your list. The credit card minimum payment is $120 so, we will start immediately paying $870 a month.

Your snowball is at its smallest point, but it will grow.

The credit card should be completely paid off in just under 12 months at that rate. Remember, you didn’t stop the minimum payments on your other loans either.

With the credit card, down we can roll that snowball into the Student loan. So, $870 plus the $150 is $1,020. That is the new size of your debt snow ball.

Your student loan should be approximately $48,200. If you begin putting your snowball to work, then that should be paid off in four years. The amount of time it took for you to get you degree is the amount of time it took to pay for it.

Its, 58 months later in our scenario and you have gotten rid of your credit card debt, student loans and, with 58 months of minimum payments, your car loan is at $18,400.  You can grow your debt snowball to $1,220 now.

In 15 months, your car will be completely paid off.

So, with this debt snowball plan, you paid off all your debt in 6 years.

That may seem like a long time, but it is an outstanding achievement to pay of $90,000 of debt in that short amount of time.

Do you know the best part of this debt plan? This doesn’t even account for tax return money, extra income you earned by selling off old clothes or even pay raises at your job. In 6 years, you are bound to stumble on extra cash. Use that extra money to expedite your debt elimination plan. You could end up shaving off a year or two from your original debt free date.

Step 5: Exhale, then take your first breath of Financial Freedom

How does that feel? You made it. You no longer must pay anyone for anything. You increased your own personal bottom line and your credit skyrocketed.

Now that you have freedom you can maneuver in ways that you would have never thought imaginable.

You can invest in to the stock market. You can buy a home. You may even want to start your own business. The best part is you can learn all those things right here on Smart Military Investor.

Going forward…

I appreciate the time you have taken to read this post. If you have put this debt plan into action, let me know. With your permission, I will share your story to all my readers. Your story may unlock the fire in someone else to do what it takes to experience that relief you felt!