A Shockingly Simple But Overlooked Method for Getting Rid of Debt

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How many people pay off debt just to continue racking up even more debt? If this has happened to you, you’re not alone. I’ve been there myself. You pay off a credit card debt and feel pretty good about your accomplishment. Then, you get an offer in the mail or think of ingenious ways to buy more junk and next thing you know, you’re carrying a balance again! It’s an endless vicious cycle in which you, the debtor, are certainly bound to lose. 

[pullquote]”Debt won’t disappear by posting your daily drama on social media or by leaving it up to a higher power without doing your part. It gets paid as a result of hard work, sacrifice, commitment and a determination to live an authentic happy life.”[/pullquote]

There is a ton of articles out there that give advice on how to tackle debt so we’re not going to reinvent the wheel here. I do want to share a few tips with you every now and then on what has helped me become debt free. If you’re really serious about getting rid of it, you’d take whatever necessary measures to make it happen period. The key is to avoid getting back in the hole once you become debt free. After all, debt shouldn’t be a permanent line in your budget. The best advice I can give you is to get rid of it as soon as possible—your future is at stake!  

No matter how you spin it, to pay off debt you need to either spend less or make more money, or a combination of both for maximum results. Debt won’t disappear by posting your daily drama on social media or by leaving it up to a higher power without doing your part. It gets paid as a result of hard work, sacrifice, commitment and a determination to live an authentic happy life.

Aside from hurting your finances, debt can be really detrimental to your health. It can keep you up at night, increase your stress, affect your blood pressure and anxiety levels. It’s a barrier to leading a happy life.

I’m a much happier person without debt and I want to share the following tip that helped me become debt free. The figures in the examples below are made up for illustrative purposes only. When I started using Mint, one thing I did was split or separate any transactions that had charges or fees. Let’s look at a few examples. In example A, I made a mortgage payment of $1,000, reviewed my mortgage statement and split the transaction as follows.

Example A – Mortgage Statement

Transaction LineSplit AmountMint Category
Principal$302Transfer>Principal 
Escrow$150Transfer>Escrow 
Interest$498Fees and Charges>Finance Charge
Late fee! $50Fees and Charges>Late Fee

In example B, I made a credit card payment of $250 per month (balance of $8,500 with an annual interest rate (APR) of 22.99%), and split the transaction as follows.

Example B – Credit Card Statement

Transaction LineSplit AmountMint Category
Principal$87.15Transfer>Principal
Interest$162.85Fees and Charges>Finance Charge

If I send a payment of only $250 a month on this card, it would take me 4.7 years to pay this off and add up to $5,383 in interest fees. If I increase my monthly payment to $500 though, it would take only 1.8 years to pay the debt off and add up to $1,883.55, which is a big difference.

Add up all the interest charges and late fees from examples A and B together and there’s a total of $710.85 in fees and charges in just one month! WOW! This adds up to over $8,000 in fees in one year! With a tiny bit of discipline, the late fee also could’ve been avoided. This money could’ve been employed in so many useful ways. No wonder why it might feel hard for some to get ahead in this country.

Just like the power of compounding can help you build wealth when it works for you, it can keep you poor and struggling when you carry debt as part of your daily poison intake. This was a wake up call for me and seeing it visually every month prompted me to take action to become debt free.

Repeat this exercise for the rest of your debt including student loans.  

getting rid of debt

Street art from the Wynwood Walls in the art district in Miami. Copyrights may be reserved.

Don’t wait any longer, this is seriously costing you money. It’s time to wake up, get on the bandwagon and start savouring the great life you could have when you become debt free.

If you’re debt free, congratulations! Your disciplined ways and realization that life without debt tastes much better must be paying off beautifully. Once you are on this side, and you start to have savings that you invest and earn interest on instead of debt, you will get to see the power of compounding interest working for you. Now, when you split transactions in Mint, you can split things such as investment returns into Principal and Interest Income.

What do you think are the barriers that keep people from becoming debt free? Do you have any tips that you can share with our readers that can help become debt free?

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My Life After Paying Off $53,392 in Debt in 3 Years

Mr. Enchumbao

Mr. Enchumbao retired at 44. He worked for 13 years at Vanguard, primarily as a Communications Project Leader in the Institutional Division, helping people save for retirement.

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6 Responses

  1. LM says:

    I’m a big fan of the Dave Ramsey system of the debt snowball and forgoing credit altogether. Many people will attack me because I’ve decided to never borrow money again, for any reason. What they are missing is the list of people I’ve seen whose lives have been destroyed by debt. Even those people that “pay their balance in full” every month. Debt gives you a false sense of security, and given the perfect storm it is a loaded gun waiting to harm somebody. If I can’t afford it, I don’t buy it. If I can buy it, I pay cash or debit.

    I agree with you: live below your means, get laser focused, and eliminate debt. But if you want to make sure you never go back, you have to leave the room and toss out the keys after you are done cleaning it.

    • Yes, I am big fan of any system that it’s well designed to get you to become debt free. I think people just don’t learn the lesson of why they got in trouble in the first place and that keeps them trapped, making the same mistake over and over again. Not borrowing again it’s a great decision on your behalf and if you have an FI mindset, I’m sure you’d get attacks on other fronts as well. People only see what they want to see. If they want to follow a certain path they tend to lean on the positive side of things and vice versa, if they don’t want to go in a certain direction, they’ll concentrate on the negative. They’ll give you all kinds of excuses on why you need to borrow and what you’re missing out on from not borrowing. And just like you said, they set themselves up for failure when the perfect storm comes. Great comment and congrats on living a debt free life!

    • No man’s credit is as good as his money. Take that from someone who repairs credit for a living. Most who will attack you are defending themselves because it takes exceptional discipline not to borrow, specially when you have access credit and loans. Keep it up.

  2. Mrs. Goodlife says:

    Great article! I think the biggest challenge for people to become debt free is changing their behavior of buying things just because you want it. I have been there and still fight the urges now and again to buy something I don’t need, but really want.
    My advice to become debt free when it comes to credit cards is to consolidate to a low interest credit card (if you have a transfer offer of 0% or 3%, that works much better than 20%+), put all your cards away ( I ‘ve gone as far as shredding them) and pay the debt off as soon as possible. Any extra income should be going towards that debt. Once you pay it off, don’t loose the habit. Invest instead in a retirement account of investment/savings. We have eliminated over $30K in credit card debt and saved over 6 figures just by doing this.

    • Hi Mrs. Goodlife, happy travels! I checked your site the other day and noticed that you’re living the life in Hawaii. Very nice. Great advice on how to reduce credit card debt. I even heard of freezing the credit card in ice cubes to resist the temptation… Very good point on moving on to investing the proceeds after paying off the debt to keep the habit. Congrats on your 6 figures savings! It’s awesome to hear inspirational stories like yours. Thanks for reading.

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