Critical Tools for Eliminating Debt

In 2015 the average American household was carrying 129,579 dollars in debt, 15,355 of it on credit cards. If the household had a loan, the average car loan was 26,530 and the average student loan is 47,712.

These are enormous numbers!

Compare those numbers to the average amount on credit card debt per person in 2010 which was 5,100.

Feb15SaleThe debt in our country is growing each year. But this debt is not coming from overspending problems. Instead, most is coming from the rise in cost of living which has outpaced income growth in the past 12 years.

Consumers will also vastly underestimate the amount of debt they are currently carrying. Lender reported credit card debt was 155 percent greater than what the borrowers reported.

And . . .

Unbelievably, the average household is paying over 6,000 in interest payments each year on the loans they are carrying. That’s at least 9 percent of the household income on INTEREST alone.

How Do You Stack Up?

A friend of mine told me a story the other day about a friend of hers whose husband recently died. Once the funereal was over and the widow could get into her finances, she learned they were carrying a phenomenal amount of debt.

Without the money to cover the mortgage she was forced to sell the house and move herself and children into a room with a friend.

My daughter and I had a similar conversation the other day. Recently married to a personal banker, it would be incredibly easy for her to allow her husband to take care of all of the finances.

But, like in all things, knowledge is power.

I counseled her to keep the knowledge, and thus the power. She and her husband should make decisions together and both should know what the bills are, where the money is invested and how the money will be spent in the future.

When I was divorced, the situation was reversed. I knew about the money, the bills and investments and my ex wasn’t nearly as up-to-date. It worked to my advantage, both during the divorce and in the years following.

What if You Carry Debt?

The reality is that we all carry some amount of debt. Whether it’s a mortgage, auto loan, credit cards, student loans or any other type of loan.

It is a highly unusual person today that does NOT have debt.

However, debt causes stress. In this situation, it’s the money (or lack of it!) that’s making you sick.

Money is the leading cause of stress, according to a survey the American Psychological Association did in 2007. 73 percent of those asked said money was a significant source of stress and debt related stress increased 14 percent between 2004 and 2008.

Debt stress can lead to ulcers, migraines, pain, anxiety, depression and heart attacks. Each of these health problems lead to more difficulty working, parenting and therefore, more stress.


Step One: Don’t Beat Yourself Up

You aren’t the only one in this position. And, although that is small comfort, it is important to recognize that beating yourself up only increases the stress you are already experiencing.

It’s time to look forward and be proactive in your debt reduction instead of reactive in your debt payment.


Step Two: Get to Know Your DebtFeb15Loans

In all likelihood you are among the people who would underestimate the amount of debt you carry. It’s time to look carefully at how much you owe and to whom. Open up a spreadsheet, pull out a Word document or just a piece of paper and pencil. Write down everywhere you owe money.

Credit cards
Money borrowed against retirement
Money withdrawn from IRAs
Car loans
Personal loans
Life insurance loans
Student loans

If you borrowed, spent or owe money to someone or some financial corporation – write it down.

Write down who, for what, how much and what the interest is.


Step Three: Make a Plan

You can’t make a plan until you know the amount you owe and the interest you’re paying each month.

The plan is to pay off the loans with the highest interest as fast as possible. Interest you are paying is money that belongs in your pocket. You spent the money or took the loan, so now that money belongs to the lender.

The faster you can pay off loans with high interest rates, the more money lands in your pocket.

Use the budget you put together in the past weeks using strategies outlined in Creating Your Budget. Remember at the bottom of that article is a free spreadsheet you can use to develop your personalized home budget.

Spend only the money you have and make a commitment NOT to use credit cards any more. If you can’t afford to buy the clothing, book, cell phone or music without using a credit card, then don’t buy it.

If you need your cards to buy food and other essentials, first make sure you aren’t purchasing non-essentials and then commit to getting help to find more ways to cut your expenses and increase your income.

You may have to move to different housing, buy a different car or cut personal expenses that previously weren’t a problem when you were married.

It’s not easy, but YOU can do it.



  1. Don’t expect your debt to disappear overnight. It’s like getting pregnant and expecting to return to a pre-pregnancy body in 3 weeks. It just doesn’t happen. If it took you 5 years to get into debt, expect that it will take at least half as long to get out. At least.
  1. Try to cut as many expenses as possible and divert the money toward your debt. Do you really need cable if you have Netflix or Amazon Prime? Do you NEED a landline? How much Internet speed do you NEED? You may be tempted to continue to go out to lunch every Sunday after church with your children because you’ve always done it. Instead, treat yourself to lunch with the children once a month and stay home the other 3 Sundays.
  1. Stay motivated through the process. It might be challenging to stay the course but it’s important to recognize that you are in a marathon and not a sprint. You must see this as a permanent change in your spending habits. BECAUSE, once your debt is paid off, it’s not time to go back again! You must then divert that cash flow to investments so you can go on vacation without taking out the plastic cards and one day retire comfortably.
  1. Use free online budget tools to help you stay the course. Buxfer, BudgetPulse and Billster are three tools you can use to help stay on track with bill paying, investments, debt reduction and a myriad of other financial options. They are free and easy to use. ONE CAVEAT: Never link your accounts to any program. With the amount of hacking that goes on, you want to keep your information as safe as possible.
  1. Understand the importance of your credit score and track it. For instance, with a score of 760 you can expect your car loan interest rate to be around 6.3 percent. But, drop that score to 660 and your interest rate takes a nice hike to 9.8 percent. You can access your score once a year for free from each of the companies – Experian, Trans Union and Equifax. If you request a report from one every four months you can track your score 3 times a year and check for errors and inconsistencies.
  1. Pay your bills on time, every time. Set up a reminder system that you can easily use to ensure you aren’t late. Being late will create a problem with your credit score, and then increase your interest rates.
  1. Don’t close any accounts you have open now, but don’t open new ones either. Your credit score is partially based on the amount of money you have available to you against the debt you are carrying. The more money available – through credit cards that are paid off – the better your score. Just don’t USE the cards!
  1. Call your credit card companies routinely – every 6 months – to ask if they can reduce the interest rates on the card. As you begin to pay down the cards with a good payment history they may reduce your interest rates, which means you’ll pay off the cards more quickly.








  1. Great tips, Gail! We’ve been debt-free since 2011 and one thing we did was go back to using cash… real cash. While check cards are not credit cards, it’s still too easy to just use the card and spend more money that we should. By using real cash (the way people used to it) we only spend what we budget for.

Leave a Reply