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A five-step strategy for getting out of debt

Most people with debt problems are so caught up in their lifestyle or their debt juggling that they can’t imagine finding a positive solution that will enable them to build wealth. Many would be so grateful to end the pain and panic of debt that they don’t think much further than that one issue.

Chuck Wallace had made the decision to remove himself emotionally from his debt and the reasons he got into it. For him this became, as it should for you, a pure business venture, a matter of simply applying dollars and cents to abolish debt.

Committed to putting the debt plan in place, Chuck had relinquished the idea that he was too far in and only a windfall could save him. Chuck also understood that it takes longer to get out of debt than it does to get into it; but since, as he started to get out of debt, he was also creating wealth, he didn’t feel that he was losing any time making himself a millionaire.

I know for a fact that because you want to, you can and will be able to end your role as a debtor and become a lender. By diligently employing basic debt elimination measures, you can get out of the debt cycle within three to seven years and at the same time start to build your Wealth Cycle. It is key to understand that these processes are simultaneous.

The following Five-Step Debt Elimination Plan is what we use for all of our clients. If you have debt it will help you begin to get out of that debt, as well as into the habit of the Wealth Account Priority Payment. As you move forward in this process you will note that what makes this different from the other debt elimination processes is that this approach allows you to live a normal life while you eliminate your bad debt. I’ve actually seen books that make you question why you need to buy any new clothes for a year. I don’t know about you, but that doesn’t work for me. If you personally do not have debt, you may know many others who do, and by helping them through this process, you help all of us to live in a better society.

Step 1. Create a debt elimination box

List all your consumer debt. Like your Financial Baseline items, this should be done electronically so you can keep track easily. This list should include all of your credit cards, charge accounts, any high-interest loans that are not against an asset, and other outstanding credit or liabilities. The list should include (1) the name of the creditor, (2) the amount you owe, (3) minimum monthly payments, and (4) the interest rate. On our Web site,, we have a debt calculator that allows you to insert these numbers and easily create these calculations.

Step 2. The factoring number

To fill in the last column, the factoring number, the following simple calculation is necessary. Take the number in column 2, which is the amount of the debt, and divide that number by the number in column 3, which is the minimum monthly payment required. For example, if you owe $7,000 on your credit card and the minimum monthly payment is $200, your factoring number would be 35. Fill in the factoring number for each item on your consumer debt list.

Step 3. Priority payoff box

On a new list, take the debt with the lowest factoring number and put it at the top. This debt is the first priority payoff. Continue to list the debt in order of the factoring number, with the debt with the lowest factoring number appearing in first place, the debt with the second lowest factoring number in second place, all the way down to the debt with the highest factoring number listed at the bottom.

Step 4. The jump-start allocation

In addition to the minimum payments required, you are going to take $200 from your current spending and allocate this to your debt elimination plan. This amount, about $7 a day, will greatly accelerate your debt elimination plan. Don’t scream. This is going to be easier than you think. And once you put together your detailed Financial Baseline you will have a clear understanding of where your money comes from and where your money goes. Finding that $200 will not be difficult, and your cash flow from new assets may create the extra money. In my experience, when you list every single expenditure in your Financial Baseline, you will find a cut that doesn’t even come close to forcing you to scrimp or sacrifice.

On the Financial Baseline of one of my clients, I discovered $600 a month spent on sushi. After several attempts to defend this expenditure, she finally, reluctantly, painstakingly, made a decision to spend just $400 a month on sushi. My guess is that when you honestly dig up your expenditures, you’ll discover a few sushi-like items that you could, perhaps, not do away with altogether but cut down on a bit. For those of you still smoking, you can kill two birds with one stone: take care of your health and your wealth by cutting out cigarettes.

Step 5. Debt payments

Take the debt listed in the first spot of the priority payoff box and apply the $200 jump-start allocation to the minimum payment listed with this debt. For example, if the minimum payment is $350, add the $200 for a new monthly payment of $550.While you continue to pay the normal monthly minimum payments on all the other debts, you will pay, in this example, $550 monthly on this specific debt until it is paid in full. When you’re finished paying off the debt in the number one spot, you will take the amount you paid for those minimum monthly payments, plus the jump-start allocation, in our example $550, and add this amount, $550, to the minimum payment on the debt in the second slot. As you can see, the payments build and build as you drop on down the list of debts and your capacity to pay off your debt accelerates incrementally. Though you will be uncomfortable with this process at first, when you witness the speed at which you make progress, debt elimination will become as addictive as accumulating the debt once was.

In this plan, it is vital that you commit to making the minimum payments, and also to adding the jump-start allocation. That number, the jump-start allocation, must be specific and consistent. Additionally, you must have in your mindset that as you pay off one debt, the minimum payments stay in this debt payment pool and contribute to the next debt’s payments. That is the only way this will work. And it works wonderfully well. You will be amazed at the speed with which you cross off each debt payment. And by the time you get to the one at the bottom, the one with the highest factoring number, which in reality represents the months it should take to pay it based on the original monthly payment, you’ll see that you’ll pay that debt off much faster than the factoring number indicated.

Making these commitments is tough to do on your own. I strongly recommend that you share your priority payoff box with members of your team. At times, you’ll be tempted to use your credit cards or assume some additional debt. If your close friends and advisors have been given permission to check in with you about your debt, they will facilitate your process with a system of checks and balances against your old impulses.

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