credit card


Debt has plagued many people when it comes to their financial goals. It is so each to get into Debt and can be very difficult getting out of debt. So what is debt? Debt is when you owe someone /or company money for a service that was provided. This could be a loan on a house. This could be a credit card. Any easy way to understand this is if you have a balance from any type of service, where you didn’t pay the full price, you have a debt. So today we are going to talk about debt and discover what we can do about lowering our debt with the goal to eventually getting rid of it.

Add it all up

First step with debt, understand exactly how much debt you currently have when it comes to your finances. This is a painful step. No one wants to see how much they are behind on their finances and it can become somewhat depressing. But if our goal is to reduce or eliminate our debt, we have to be realistic. We have to be honest with ourselves so we can attain our goals. Here are some steps to get you started.

  • Create a list of all your debt by writing down the name of the business.
  • Write down the current balance.
  • Write down the interest rate.
  • Write down the minimum payment required.

Add up all of these debts to find out exactly your financial situation. My wife and I like to use a spreadsheet so we can print it off and post in our office. The visual effect works. I can actually see my debt and for me, it motivates me to keep focus on the goal: get out debt.

If you have read my other post on budgeting; my wife and I do this step within our budget for a couple reasons. 1) We want to make sure our payments are correct so we don’t underpay the loan. 2) We want to know what are interest rate is for each loan and see what we can do to lowering those rates.

The nasty interest rate…

What is interest rate? Interest rate is the percentage that you pay to the lender for borrowing their money. This is how they make money by charging you a rate off the outstanding amount.

So when you are paying off your debt, having high interest rates can slow down the process because you have higher payment.

Here’s how to calculate your interest charge (numbers are approximate).

Divde your APR by the number of days in the year. Multiply the daily periodic rate by your average daily balance. Multiply this number by the number of days (30) in your billing cycle.

Loan 1: $5,000 loan. The rate is 15%.

Here’s how to calculate your interest charge.

  1. Divide your APR by the number of days in the year.0.15 / 365 = a 0.00004 daily periodic rate
  2. Multiply the daily periodic rate by your average daily balance.0.00004 x $5,000 = $2.05
  3. Multiply this number by the number of days (30) in your billing cycle.$2.05 x 30 = $61.64 interest charged for this billing cycle

Month 1: So when you make a payment of $100 dollars; $61.64 goes towards interest and $38.36 goes to the actual loan (principal).

Next month, our loan is $4961.64. The rate is still the same at 15%

We already know our daily periodic rate is .00004. Multiply .00004 x $4961.64 = $1.98 . Multiply this by 30 days = $59.53 interest for this cycle.

Month 2: Our next payment of $100 dollars breaks down as $59.53 towards the interest and $40.47 goes to the actual loan.

As you can see, the interest can really slow you down on paying off the principal amount of the loan. But we as consumers can make the situation worst when we add more debt to our credit card. If we are adding more debt, we are adding more interest.

Pay it off now!

If we want to have a financial independent lifestyle, we have to get rid of our debt, it’s that simple. What we have to do is live within our means. So how do we get there?

First, we take our list from earlier and start working on each debt. My suggestion is work on the lowest balance first. This will help motivate you on the next debt. After you work out your budget for the month, see if there is any extra that you can put on the debt. Maybe like I mention from my other post you find an easy side job to help pay extra.

Second, many credit cards have low interest rate transfers. Make sure to read the fine print. Normally there is still a fee for balance transfers, even if the interest is 0% for 12 months. But if you can lower the interest rate, it can help you pay off the principal faster and then you can focus on your next bill.

Some people believe in snowballing your debt. This is where you pay the minimum on all your loans except for the one that you are focused on paying off first. Then after you are done with that loan, you take the amount that you where paying on the first loan and apply it with the minimum on your second loan. You would follow this on each loan as you pay them off. This is to speed up the process of paying off your debt. Check out this debt reduction spreadsheet that I have used in the past.

Light at the end of the tunnel

Taking on your debt is a challenge, but if you stay positive and focused on your goal, you can and will pay it off. Try hard to not add debt. In my next post we will talk about living within your means so you don’t get yourself in a situation where your debt is out of control. Please comment below on what has worked for you as you tackle your debt or any questions that you may have. As always, stay positive and pursue your goals!



20 Responses

  1. I agree that adding up all of your debt is a useful exercise. Getting your head out of the sand (we’re not ostriches!) and getting a clear picture of our finances can make all the difference. 

    Also, thank you for the clear information about interest. I didn’t know that there were low-interest transfers. My college loans got a little out of hand for a while there because of interest. Thankfully they’re all paid off now! 

    • Thanks Wendy. Unfortunately the interest can really hurt when trying to pay off your debt. Happy that you were able to pay off your student loans! I am very close myself!

  2. Thanks for sharing these tips. I have some debt that needs to get sorted by the end of this year. It’s nothing serious and I shouldn’t have any trouble to sort it out. I have already developed a plan and have put it in action, but I could use your tips to speed up the process. Do you have any suggestions on how to focus on earning more to pay off your debt? Thanks again for sharing this info Much appreciated!

    • So I would first start with your current job. Maybe you can ask for a raise? If that is not an option, then a side job might be the next option. Check out my other page on side jobs for some ideas. If you have extra, after paying yourself first, I would use that on the debt. This is to help get out of the debt as fast as possible, but still not spending all of your money on the debt. Hope this helps. 

  3. You have touched on a very important subject, one some of us wished we had a better financial education. I once had a credit card where the interest rate was 24.99%. It took me a while before i thought it was highway robbery, borrowed the balance at 5% and paid it off and  discarded the card. We should teach financial in schools and teach kids how to manage debt; it could be a burden all your life. Thanks for sharing.

    • I agree and I am trying to do just that with my children. We have setup accounts for all three kids and their allowance goes to those accounts. My son about 3 months ago wanted his allowance in advance so he buying something. I had to teach him the hard lesson of having to wait, just like how daddy has to wait until he gets paid. It is too easy to use a credit card and unfortunately very little is being done to teach our kids. 

  4. Great info on how to manage your current debt as well how to get out of debt.  

    Interest rates are nasty little buggers that add up if you’re only making the minimum payment every month, causing you to end up paying more that the actual debt.

    I agree about not living beyond your means.

    I find that the best way to do that is by not only creating a budget, but also following it.

    Thanks for the great tips!

    • Creating the budget is actually the easy part. Following it and adjusting it as need is very hard! Good luck and I am sure you will do it!

  5. I agree with you. Avoiding to return loaned money and ending your debt just makes things worse for you. I would advise that if you are at the possibility – first focus on returning the money. You need to cut all the extra expenses for 3-6 months and enjoy the life of freedom.

    I love your website by the way.

    • Thanks brother! Just the sound of not having to worry about debt makes me feel good. I hope everyone feels that way. Impulse buying is another good feeling (in the moment) that gets us all in trouble. We have to hold back on the impulses and look into our future where we will not have anymore debt. 

  6. Nothing freaks me out like outstanding debt, I avoid them with every means possible. What’s even worse is the interest that makes sure you are on a never-ending rat race. Getting in control of your finances is very important if you intend to make any financial improvements in your life.

  7. A set of very practical and easy to understand steps that someone can take in order to start getting out of debt. You’re right, it’s much easier to get in to debt than out of it so it’s always important to read the small print. A certain amount of debt is probably unavoidable for most people at some point in their life but it’s important to keep on top of it and know exactly what you owe.

    • Exactly. One thing to have a credit card where you pay it off each month. Another when you cannot pay it off. We all need to look at how we can collect interest and not let lenders (by our own actions) collect it from us. 

  8. Hey Fred! I really enjoyed and appreciate this guide. I have a lot of student loans and am trying to get them paid off but I never seem to have the money. I really like how you broke this all down for me. It makes me feel like paying them off IS possible and I’m motivated to get them paid NOW because I DO want to be financially independent. Thanks so much!!

    • Marlinda,

      It is totally possible and you will pay them off! Just stay focus. It’s not going to happen overnight unfortunately; but keep track of progress and it will motivate you to keep pushing through! 

  9. Adding up all the debts over time would actually cause problem and would be to our detriment if proper care is not taken. Thank you so much for sharing all these useful post. This has served as a sort of awakening to point us into the direction that will set us aright in our debts.
    paying the debts might seem daunting but taking that step of faith and doing the needful is the only normal thing we can just do to attain that success and debt free life. Thanks

    • Totally agree. It’s a challenge that many of us of have had to deal with in our lives. We cannot be financially free with more and more debt. 

  10. Debt is never good irrespective of how it is being presented. It must be tackled with full force to ensure that it does not affect our daily free life. Oiling the debts up would only lead to getting into a more tighter spot with a heap pile of interests baring their fangs at one.  This is really good to see here as a wake up call. Thumbs up to you for sharing this since it would be of help to us all.

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