Taming Your Debt: Aggressive Repayment Strategies


Why is it so easy to get into debt and so hard to get out? I think the answer lies somewhere in the machinery of our consumer culture. We’re constantly encouraged to buy things whether we can afford them or not. There are creditors lining up to finance whatever they’ve convinced us that we not only need, but rightfully deserve. And what happens when we find ourselves on that predictable but precarious ledge — teetering on the edge of financial ruin? There are more products and services to buy that can help us solve our financial problems. And (surprise!) not only do we need these essential tools, we deserve them!

If you see the sick cycle here, you’re not alone. More and more folks are waking up and realizing that taming debt just takes a bit of planning, some conscious choices, and some very hard work. Let’s explore a few strategies to tackle your debt and empower your financial future. (See also: How to Start Fighting Debt — Today)

Face How Much You Owe

The first step to any successful debt repayment plan is to get an accurate idea of exactly what you’re up against. Avoidance is not your friend; organize your statements, make calls, and determine exactly how much you owe to each creditor. It’ll inform the rest of your strategy and help prepare you for the next essential steps.

Go Cash-Only

I was tempted to make this the first step, but people tend to be much more motivated to adopt a cash-only life when they see how much they owe. Consciously choosing to spurn all but the most essential (read: life-and-death) debt is a vital piece of the puzzle. Put your credit cards on ice and resolve to pay with cash only. Consider rudimentary cash management systems like envelope budgeting to keep your spending in-check. Withdraw all the cash you'll need at the beginning of the month and divide it between envelopes that are labeled by expense. Force yourself to spend only within the parameters of each envelope's available cash. Nothing saps motivation like hammering down one debt while another one pops up somewhere else.

Chart It Out

Equipped with your figures, create a spreadsheet of what you owe. This doesn’t have to be fancy. Whether you use a computer and budgeting software or poster-board and a Sharpie, just take the information out of the abstract and make it visual. Keep your chart prominent and easily accessible to encourage updates maintain laser-like focus. Use it to track progress, make notes, document your successes, and motivate yourself along the way.

Start Communicating

Once you know how much you owe and can see the challenge ahead, it’s time to start communicating (if you haven’t already done so). Start a discourse between yourself and your creditors. Explain your situation — share the circumstances that helped create this debt and stress your motivation to pay. Ask if there’s any opportunity to lower your interest rates, have penalties waived, or set up a payment plan that will prevent interest from accumulating. Create a list of important customer service numbers to keep the communication channels open during the entire repayment process. This active communication does two things. First, it demystifies the debt and tames it in your mind. Second, it establishes a history of communication and positive interactions that often allow creditors be more flexible with terms.

Attach a Source of Income for Each Debt or Debt Category

Depending on your employment situation and time obligations, consider servicing each debt or debt category through a part-time job. For example, could you work in a coffee shop on weekends and direct everything you make to your car loan? What about tutoring students during the evenings and splitting the income between all your credit card debts? Though it may sound extreme, if your financial resources are already stretched paper-thin, this tactic creates a brand-new money stream that’s earmarked solely for debt repayment. It’s a powerful tool that can often tame debt faster than budgeting and re-budgeting a single source of income.

Pay Off the Small Debts First...and Fast

I know it goes against most number-crunching advice, but I’m still a fan of paying off the smallest debts first. Of course, every situation is unique and there may be extenuating circumstances that make this approach impossible. But if there are no immediate financial disasters looming, (i.e., foreclosure/eviction, repossession, wage garnishments, etc), consider making the smaller debts top priority and taking care of them quickly. This approach gives you a bit of breathing room to focus on the "big kahuna" debts, creates some positive reinforcement, and gives you that most essential tool of all — the encouragement to do it again.

More than likely, when that last payment is made you’ll experience some sort of natural exhilaration. You’ll look at that scrawled chart and all your notes and inadvertently find your motivation for the very last step, the one that goes almost without saying — stay debt-free.

Do you have a debt-defeating story? What methods did you use to tame your debt and start fresh?

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Guest's picture

It can be helpful to pay off the debts that can't be renewed first. For example, paying off the student loan first--even if it is at a lower interest rate than the credit card-- lowers the total amount owed and lets you see fast progress in paying off the entire amount. If you pay off the credit card first, you may just run it up again while paying off everything else. Reducing the total debt load first makes it easier to see an end in sight and therefore have the self-discipline to pay it all off.

Guest's picture

We only really started aggressively paying down debt once we sat down and laid it all out. We had a talk about all the factors that go into who we want to pay first - using interest rates, length of the loans, and who they are from (since one loan is from Mr PoP's parents).  http://www.plantingourpennies.com/2012/06/25/prioritizing-debt/

Since then, we've kept up scheduled payments on everything, and put $8.5K in the last two months towards the principal on our highest priority debt. Fingers crossed we can stick to the game plan and stay on track. 

Guest's picture

Actually looks like I might have messed up the link to our 'Prioritizing Debt' post. Here it is if anybody wants to see how we did it!


Guest's picture
John S

Great post! The sense of "deserving" you talk about is a difficult hurdle to overcome, but doing so is half the battle. Years ago I found myself in a similar hole due to credit card debt. It was a very painful experience, but I learned so much through it. I overcame it through budgeting, which seemed like such a horrifying experience at the time, and reigning in my expenses. I look back at it now and am so thankful of the lessons I learned. My wife and I also use a variation of the envelope system and it works great for us. It is so freeing knowing that we have the freedom to spend our cash as we please as long as we stay disciplined.

Guest's picture

This is an excellent article on managing debts, Kentin.

I will add two additional points here: first, it is critical that YOU must want to regain control on your financial life. Other than talking to your creditors, you must also talk to yourself: that you got yourself into the mess and you must take the actions to get yourself out. No one else will do it for you.

Secondly, doing this is more than just managing the dollars and cents, more than just numbers. It often calls for a change in mindset, change of habits and often time, a different way of living! If the figures are overwhelming, then the changes will be even more drastic.

But as anyone who has ever risen above their debts will declare, the results will make all the sacrifices worthwhile!

Guest's picture

Paying off debt takes time, patience, and persistence. At the same time, it is definitely worth all of the work you put into it, and more.

Scale back all discretionary spending. Cancel your cable. Eat at home. Make more money (if possible.) Find free and cheap things to do for fun.

Take the money you save and tackle your debts one by one by one.

Guest's picture

Being unemployed after college I managed to collect some crazy debt. I was making the minimun payments but that didn't make any dent. So I went back to working retail after not being able to find a career job. And made my plan. They were all pretty bad, so I started small since my paycheck was very small and paid the minimum balance EVERY paycheck. $27 here, $19 there, $31 here, ect every two weeks. And I started seeing some inprovement. Then I got a better paying job. Stayed at retail and directed those paychecks into savings. Working 7 days a week trying to pay off that debt. I threw my tax return to kill one and a half cards and then refocused that money to pay off the other cards. I'll be down to 1 card left in a matter of 4 paychecks. And from there, I think It'll be between 3 and 4 paychecks before thats done. I can only taste being far far away from credit cards.

Guest's picture

Another great article by Wisebread! One of the prime sources of the debts that we are dealing with is because of irresponsible use of credit card. Try to stop unnecessary usage of credit cards. Cut back on unnecessary bills like spending on a extra coffee, restaurant foods etc. Build an emergency fund. I think one of the important steps toward getting debt free is making a proper budget in the beginning of a month and following it throughout the month. You should have a proper spending and saving plan. Don't let the debt monster spoil your relationship with your near and dear ones. Just remember no matter how hard the situation is right now, you could overcome it with your sheer determination.