When It's Time to Destroy Debt, Start With a Goal

Photo: Setting Goals

Hey, let’s go for a ride! Where do you want to go? Nowhere? OK, we’ll just drive around aimlessly and hope we accidentally end up somewhere interesting. Hop in!

That’s the way most people plan their lives, financial or otherwise. They may have a vague idea of a destination, like living debt-free, for example. But they’re not really sure how to get there or how long the trip will take. So they waste time driving in circles and wondering, “Are we there yet?”

If you feel like you’re not getting where you want to go, this could be why. Because if you don’t know what your specific goals are, you’re not likely to achieve them.

Watch the following video about goal-setting, then meet me on the other side for some specifics to get you started.

So as you saw in this news story, I'm a big believer in goals. Your goal is your destination. You get there by describing that destination as specifically as possible and getting everyone who’s going with you on board. You visualize your goal in as much detail as humanly possible, then define the exact steps required to achieve it. You divide those steps into manageable tasks. Then you follow through until you arrive. If you don’t do each and every one of these steps, you’ll drive around in circles.

This is explained in detail in my recently released third book, Life or Debt 2010 but here’s the condensed version.

Name your destination.

If your goal is to live a debt-free life, write it down. Put reminders on your bathroom mirror, on your dashboard, on your computer screen. Keep it in front of you as much as possible. And when you look at that goal, take the next step.

Visualize it.

Visualize your goal: What will your life be like when you have no debt payments? What will you do with all that extra money when you don’t have any credit card payments? Car payments? Mortgage? When all the money that used to go to lenders is now going into a big, fat bank account? How will your life be different? Try to actually feel the freedom you’ll experience.

Do that every time you see your goal, especially when you first wake up and just before bed.

Get everyone on the bus.

Unless you live alone, your goals will likely affect those you live with. So if your goal is paying off debt, for example, you’ll most likely need the cooperation of your family. After all, it doesn’t do much good if you’re trying to pay off debts and your husband is out new-car shopping. Make sure your goals are shared and the people who can affect the outcome endorse them.

List the steps to achieving it.

Obviously, to achieve a debt-free life, you’ll have to pay off all your debts. Start by listing them all, then decide in which order you’ll pay them off. How? Try ranking your debts by starting with the one with the fewest payments left. To do that, list all your debts. Divide the amount owed by the monthly payment. That gives you the number of months it will take to pay them off.

For example:

Debt Current Balance Minimum Monthly Payment Months to Payoff Debt Rank
Visa Card $2,239 $45 50 2
MasterCard $1,845 $37 50 2
Car loan $7,500 $212 35 1
Student loan $11,700 $182 64 3
Mortgage loan $120,000 $917 131 4

In this example, the first debt I’ll pay off is the car loan. Then the credit cards, the student loan and finally the mortgage.

Now, in addition to having an overall goal of a debt-free life, I’ve got a more digestible, definable, shorter-term step: to pay off my car loan. I’m going to focus like a laser beam on that debt, applying as much extra money as I can on it, until it’s gone. Then I can move on to the next step of paying off the Visa or MasterCard.

Of course, there are other steps I’ve got to take, like finding the extra money to destroy these debts. In the book, I ask that you set aside 10% of your gross monthly income to do it and show you specifically how to go about finding that money with literally hundreds of specific ways to save.

We’ll be going more into that in coming news stories and blog entries. But in the meantime, start now by setting a goal and ranking your debts for payoff.

One more word on debt ranking: The reason I rank debts by fewest payments rather than highest interest first is that I’m going to use old debt payments to help pay off debts further down the list. It’s a system called snowballing. For example, if I apply an extra $500 a month to my car payment, it will be paid off in about 10 months rather than 35, and I’ll use the $212 I’ve freed up to apply to the Visa or MasterCard.

But if you’d rather pay off higher-interest debts first, that’s OK. Just decide and get started!

Follow through.

And that leads us to the last step in goal realization: following through. Goals like living debt-free take time, so long-term follow-through is critical. That’s one reason you keep your goal in front of you, visualize it as often as possible, and track your results often.

Bottom line? When you finance with debt, you’re wasting massive amounts of money — money you should be using to create a better life. So, paying off debt is definitely a worthy goal. But don’t just wish it. Make it real: Write it down, plan it out, and make it happen.

Note: To go along with Life or Debt 2010, I’ll be doing 20 related news stories and blog entries at Money Talks News, as well as hosting monthly live webcasts where I’m inviting everyone to participate with advice, tips and motivation — all with the goal of getting together, motivating one another and destroying as much debt as possible this year.


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Guest's picture
2 Cents

You make tons of great points here. Writing it down, doing the math and following through have helped us out a lot. But I have to say that getting started at all seems to be the hardest part for a lot of people. These step by step instructions are great for anyone who is really ready to do what it takes to wrestle down their debt. Thanks!

Guest's picture

You need to calculate the amount of time left to pay off the debt using the amount of money you have to put towards the debt, not the minimum payment. You should also be using the interest rate to calculate the amount of time left.

If you have an extra $500 to put towards debt, it will take you 4 months to pay off MasterCard, 5 months to pay off the Visa, and 10 to pay off the Car loan. The credit cards also probably have the highest interest.

Debt snowballing, I believe, is using the smallest balance, not the least number of minimum payments left.

Guest's picture

I have found that I never stick to my debt goals unless I share it with my wife. We are fortunate that we have never had unmanageable debt but we do have some debts on credit cards and the only way to plan on how to clear it is to write it down and get your partner to also buy into it.
If you don't do this then you lose impetus and you can help to motivate each other.

Guest's picture

This is a great article, and really gets accross the fundamentals of becoming debt free. I love the idea of "getting everyone on the bus". As they say, a problem shared is a problem halved! Thanks!

Guest's picture

The first thing you need to do is get a plan and revisit that plan every single day. It can be so difficult to keep on track but that validation that comes with having something in writing really helps.

Guest's picture

We started to make a difference when we made paying our credit cards off as goal number 1. We ate, slept and thought of paying this off and nothing else and we are so glad we did because we can sleep well without having that horrible feeling of waking up at 3am with the worries of the world on your mind.

Guest's picture

very important it is to educate people to get rid of loans, and better is to avoid taking loans at first...
a loan should be the last option, or should be taken if a person is sure of paying it off on time...