Create Your Battle Plan For Eliminating Debt

Game Plan

Not only does being in debt suck in a general sense, it also sucks your money away in the form of interest payments.

If you’ve finally come to that same conclusion (and I hope you have), you’re probably itching to get started attacking your debt.

But before you attack, you need to have a battle plan. You need to know where to focus first.

Most financial coaches will focus on one debt repayment method and tell their clients to use it without question. I’m not like that.

I want to show you all of the options that are out there for your use. You need to discover which method works best for your situation and run with it.

Prioritizing Your Debt Elimination Plan

In all of these methods, you’ll be prioritizing your debts according to different stipulations.

The top debt on whichever method you choose will be your #1 priority and the one you’ll focus on. You’ll pay the minimum on every debt except the top one. All of the extra money you have left over from your budget gets put on this top debt. Once that debt’s gone, you move to the next. Rinse and repeat until you’re out of debt!

To help illustrate each method, let’s assume that you have the following debts:

  • $7,800 Car Loan @ 2.9%
  • $23,000 Student Loans @ 6.8%
  • $3,200 Visa @ 12.9%
  • $5,000 Family Loan @ 0%
  • $16,700 MasterCard @ 22.9%

Let’s check out the options!

Lowest Balance First

With this method, you’ll prioritize all of your debts from lowest to highest balance. In other words, the first debt you’ll focus on is the one with the lowest balance.

Here is how your debts would be prioritized with this method:

  1. $3,200 Visa
  2. $5,000 Family Loan
  3. $7,800 Car Loan
  4. $16,700 MasterCard
  5. $23,000 Student Loans

To start, you’ll pay the minimum on all of your debts except the Visa. With the Visa, you’ll take all of the remaining money from your budget and pay it on the Visa. When you get that paid off, you move to the family loan.

As you progress through the debts, the amount you are paying on the prioritized debt will keep getting bigger and bigger. 

To prioritize your debts using this method, use the following worksheet:

Download: Pay Off Debt: Lowest Balance Method (PDF)

The main goal with this method is to earn quick wins. In other words, this method will cause you to pay off your first debt the quickest out of any of the others. You’ll have a quick accomplishment and then be hungry for more.

Highest Interest First

With this method, you’ll prioritize all of your debts from highest to lowest interest rate. The first debt you’ll focus on is the one with the highest interest rate.

Here is how your debts will be prioritized with this method:

  1. $16,700 MasterCard @ 22.9%
  2. $3,200 Visa @ 12.9%
  3. $23,000 Student Loans @ 6.8%
  4. $7,800 Car Loan @ 2.9%
  5. $5,000 Family Loan @ 0%

The system for paying the debts is the same as the other methods. You pay the minimum on everything except the #1 ranking debt. You take the remaining income from your budget and aggressively pay that one off. When it’s gone, you move on to the next one.

To prioritize your debts using this method, use the following worksheet:

Download: Pay Off Debt: Highest Interest Method (PDF)

The main goal with this method is minimizing your interest cost. By paying off the higher interest debts first, you will minimize the cost of your debt to the lowest possible level.

This method also comes with some criticisms.

If you look at the priority list, you’ll notice that the first debt you’re attacking (the Visa) carries a balance of $16,700.

If you’re only paying $500 a month on the debt (because that’s what your budget can handle), it’s going to be a long time until you get that paid off. Will that cause you to lose focus of the end goal? It might. It might not.

Highest Emotional Impact First

With this final method, you’ll prioritize your debts according to their emotional impact on your life. 

Do you have a debt that’s just eating you up inside? Pay that one off first. That’s the wonderful thing about this method – you get to choose your path.

Let’s say that you absolutely hate the fact that you owe your family money. You avoid spending time with them because it’s embarrassing. Christmas just isn’t the same.

Since this debt bothers you so much, you should attack it first. Just removing the burden of this debt could be the spark that you need.

When you work your way through the list and start to feel indifferent regarding the remaining debts, just pick one of the other methods and finish your plan out using that method.

Let’s say you decide to pay off the family loan first and then your are indifferent regarding the remaining debts. You decide to just pay the remaining debts off according to their balance (lowest first).

Here is what your priority list would look like:

  1. $5,000 Family Loan
  2. $3,200 Visa
  3. $7,800 Car Loan
  4. $16,700 MasterCard
  5. $23,000 Student Loans

To prioritize your debts using this method, use the following worksheet:

Download: Pay Off Debt: Highest Emotional Impact Method (PDF)

Once again, the main goal with this method is to prioritize your debts so you pay off ones that you absolutely hate first.

It may not make sense when you look at the math, but the psychological effect that this method can have on your emotions may have more value for you. 

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So there you have it! Three battle plans to get out of debt. Which one are you going to choose?

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7 Responses to Create Your Battle Plan For Eliminating Debt

  1. It’s been a while since we’ve been in debt, but we chose to tackle the smaller balances first just for the psychological benefit. I remember when we paid off a personal loan for $1,000 and a credit card balance of $2,000. Even though those debts weren’t at the highest interest rates, it was still nice to just get them off of our plate.

  2. THANK YOU! Thank you for noting that there are more ways than just the Highest Interest First route. I always felt like such a failure if I tried a different way. Recognizing now the WHY that I get into debt is also helping me to make a more permanent decision to get these debts worked out and gone for good. I have to do the Lowest Balance First method, because it provides me with a sense of accomplishment and reward after each one – and it feels like that reward comes faster too!

    • You’re welcome Mel!

      You should never feel like a failure by trying something different. How else would new, innovative stuff get created? 🙂

      Stick with what works best for you even if it takes you longer than others. Their opinions shouldn’t matter to you. It’s your goals that you’re striving for!

      Now get out there and attack that first debt!

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