Get Out of Debt Now!

By in Debt | 6 comments

How to Get Out of Debt Now

“The time to save is now. When a dog gets a bone, he doesn’t go out and make a down payment on a bigger bone. He buries the one he’s got.”
Will Rogers

I don’t think Will Rogers is suggesting dogs are smarter than humans, or maybe he is. Anyhow, in this instance, following a dog’s instinct may be a good idea!

get out of debt now

Eliminate Debt for a Wealthy Future

It is very difficult to save if you are carrying credit card or high interest debt. Look at Josh’s situation; he loves electronics, computer games, entertainment etc. and believes that since he has a job, he should reward himself by buying whatever he wants. And, like most ambitious young adults, he wants to go on nice vacations, get married sometime, and buy a home. Josh isn’t a big planner and is just happy to have graduated from college and gotten a job.

Without even trying, Josh racked up $1,000.00 in credit card debt. He doesn’t pay it off at the end of the month and adds a few bucks to the bill every month. Let’s break it down and see how, building up credit card debt makes it impossible to save for future goals.

  1. Imagine that you owe $1,000.00 in credit card debt.
  2. Every month that you do not pay that debt off IN FULL, you are being charged interest by the credit card company for the privilege of the loan they are making to you.
  3. Josh’s interest rate is 20%. That means, tack on 20% to any balance left on the credit card.

Scenario 1: Imagine that Josh decides he’s not going to add to his debt and he will pay a few bucks more than the minimum payment on his card.

Current debt = $1,000.00

Interest rate paid to credit card company = 20%

Monthly payment = $30.00

Months to pay = 48 (that’s 4 years)

Total interest paid = $435.00 (on top of the $1000.00)

Scenario 2: Josh doesn’t like that scenario and decides to tighten his belt and pay $150.00/month to his $1000.00 debt and not add to it!

Current debt = $1,000.00

Get Out of Debt

Interest rate paid to credit card company= 20%

Monthly payment = $150.00

Months to pay = 8

Total interest paid = $50.00

See here’s the deal; if you only pay the minimum payment, and don’t even add to the balance, you can end up paying a ton of interest. Josh paid a couple of bucks more than the minimum in the first example and paid an additional $435.00 in interest on top of the original $1000.00.

Would you buy those same electronic games if they cost 50% more than you originally paid for them? I don’t think so.

As you saw in the second example, Josh sucked it up and found $150.00 each month to pay to his debt and didn’t add to the debt. In 8 months he got rid of the credit card debt. And he only paid $50.00 in interest. (Still too much in my opinion, but better than $435.00.) 

And Josh felt so much better because he got out of debt now, rather than later.

By increasing your payment, you can speed up your debt repayment significantly.

Let’s reverse the situation and pretend Josh has zero credit card debt and wants to start saving for his future goals.

Monthly saving payment = $150.00

Interest rate paid by bank = 1.5%

Balance after 8 months saving = $1,213.00

Total interest received = $6.83

Practical Application; Would You Rather Get Money or Pay?

If you use the $150.00/month to save, at the current savings rates, you earn about $7.00 over 8 months. I know $7.00 isn’t much, but getting $7.00 is still better than paying $50.00 interest.

So, unless the interest rate on your savings account is higher than the interest rate charged on your credit card, carrying a credit card balance is a losing proposition.

Ask yourself would you rather get $7.00 or pay $50.00?

Clearly, the takeaway is that in order to reach your financial goals, you must eliminate credit card debt.

 Some of you may look at that puny interest rate on savings and cringe. Actually, I’m one of those who cringe at the low interest rates on my savings. Don’t worry about the interest rate right now.

Interest rates go up and down, and you have no control over the interest rates at all. And regardless of how much interest you are receiving on your savings right now, it is better to receive any amount than PAY interest on your debt.

As long as you are carrying credit card debt, not matter how much you save, you lose! You gain more financially by eliminating credit card debt balances than by saving (when you have credit card debt).

Pay off debt 1st, and then save!

Action Steps

  1. Go to an online calculator at bankrate   or moneychimp.  Plug in different repayment amounts, to see how fast you can pay off the debt. If you are in the UK, try using this debt calculator from thinkmoney.
  2. Write down the amount you are willing to commit to debt repayment in a visible place, list a couple of spending items you will reduce, and PAY OFF THE DEBT.
  3. Check out one guys fun filled escape from debt at Punch Debt in the Face.

To read more on this topic, go here.

What is your best GET OUT OF DEBT advice?

image credit; Credit Card Debt Consolidator


  1. That is actually a really good point. I am also under the credit card debt and what I do is, whenever I get extra money, I pay big amounts just to lower my interest rates. Since I got the credit cards, my finances have been really unstable. I wish I could do without them, but it seems a bit impossible for me right now.


    February 14, 2011

  2. Hi AML, You are smart to increase your debt payments whenever you can. Why not try a cash system to cut down on credit card use? I know if you put your mind to it you can stomp out that credit card debt. Good luck and thank you for visiting.


    February 14, 2011

  3. I love using debt repayment calculators to get motivated and pay off credit card debt. Ever since I paid off my credit card debt last year, I’ve been diligent with paying off any charge I incur every month. Who wants to pay interest on top of the original charge? No one, and the calculators make it easy to see how much you’ll save.

    Little House

    February 14, 2011

  4. Hi Little House. Thanks for promoting the on-line debt reductions calculators. I think they are absolutely fantastic for offering both information and motivation!


    February 15, 2011

  5. “As long as you are carrying credit card debt, not matter how much you save, you lose! ”

    So true Barb! The interest on a typical CC is so high that no matter where you invest, it is hard to beat what a CC company charges.


    February 16, 2011

  6. Hi MoneyCone, As usual, a wise comment (I wish I had said it). For many it’s really hard, but in life enjoyment-no cc debt is worth all the sacrifice!


    February 16, 2011


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