Debt itself isn’t the problem – it’s how we manage it that makes all the difference. It’s not a money issue; it’s a people issue.
Life happens, and sometimes debt piles up, leaving you feeling stuck and overwhelmed. If you find yourself in a cycle of paying it down only to see it build back up, it’s a sign that the real root cause hasn’t been addressed.
Let’s put an end to that cycle, once and for all. Here’s 10 steps to help you wipe out bad debt for good:
1. Get off the credit drug
If overspending got you into debt, it’s time for a personal debt detox by cutting out credit spending. Remove temptation, otherwise old habits will return and sabotage your progress.
Cut up your credit cards, or if you must keep one, place it in a container of water and freeze it. That way, any use will require the hassle of breaking it out of the ice, giving you time to reconsider!
2. Get clear on what you owe
Open a spreadsheet and list every debt and:
- who it’s with
- how much it is
- what the interest rate is
- minimum monthly payments
- how long it will take to pay off based on your current repayments.
3. Choose which debt to tackle first
There are three strategies to consider:
Deal with the urgent
Some debts are more pressing than others — those with collectors involved, for example. Ignoring them won’t help, so prioritise handling these first to avoid mounting costs and protect your credit record. Consider negotiating new terms with creditors to make these debts more manageable.
High-interest first
From a financial perspective, start with the debt carrying the highest interest rate. Pay the minimum on other debts while focusing on this one to save the most money in the long run.
Lowest balance first
For a psychological boost, tackle the smallest debt first. Clearing smaller balances gives a sense of progress and builds momentum, turning debt reduction into a challenge rather than a burden. Use this momentum to fuel your future wealth-building efforts.
4. Set your hit list and order your debts accordingly
Once you have decided which option will best suit you to begin with — whether the most pressing, the highest interest or the lowest balance — go back and order your spreadsheet accordingly. You now have your hit list.
Learn more about investment strategies in Escape the Middle by Todd Polke.
5. Free up cash by plugging the leaks
Most people I meet are leaking money due to financial inefficiencies. It’s time to plug those leaks. Negotiate everything and tighten up your expenses and then take the spare cashflow to commit towards debt elimination.
6. Transfer balances to lower your interest rate profile
Anywhere you can, adjust your interest rate from a higher to a lower level. For credit cards, look at balance transfers to get extended interest-free periods, freeing up even more cash to begin compounding that debt down.
7. Take control of your cash flow
I always tell my clients, “Why would you be given more money to manage if you can’t handle what you already have?”
It’s time to step up and take charge! Create a clear plan for where your money goes, ensuring it flows toward the areas that bring the most value to your life. Every dollar should have a purpose – start being intentional with your finances.
8. Snowball it, ploughing the debts over
Pay the minimum on all debts except the one you’re targeting first; add the extra cashflow directly into that. Once that’s cleared, take what you were paying on it, plus any extra cash, and focus on the next debt.
Repeat the process, combining payments from each cleared debt into the next. This creates a snowball effect, rapidly reducing your balances and bringing a satisfying sense of progress.
9. Shift your focus — you get what you focus on
With your debt plan in place, stop obsessing over it. Instead, focus on creating more abundance in your life to accelerate debt elimination. Here’s how:
- Increase efficiency: Identify where you’re wasting money and streamline your finances. Create a budget, negotiate lower rates on bills and audit your expenses to manage your money like a well-oiled machine.
- Grow your income: Upskill to increase your market value and earn more for your efforts.
10. Reallocate — shift from debt reduction to wealth creation
Now you’ve eliminated your debt, you have extra cashflow. What will you do to change your financial future? Add it to your buffers or your freedom fund to put it to work for you.
In the end, eliminating bad debt isn’t just about paying it off – it’s about reshaping how you think about money. This isn’t a quick fix; it’s a roadmap to financial empowerment, where you control your money, not the other way around.
Debt doesn’t have to be a life sentence. By shifting your focus, breaking free from toxic spending habits, and following a solid plan, you can move beyond financial stress and start living free.
