debt29th April 2016 –

Maybe this article should have been titled “Getting started part 1” since being in debt (a home mortgage is the only exception here) is going to be one of the most critical factors holding you back from reaching your financial independence goal.

In fact this topic is so important I’m going to call on the combined resources of THREE of the best known financial advice bloggers to help explain why this is a big problem, and what you might do to fix it.

Now, I have to admit, I have only been in what I consider, bad debt once in my life, and that was quite some time ago now. Perhaps I’m a fast learner but I came to the conclusion that owing a large amount of money to the credit card company as a result of reckless spending is not a good position to be in.

I don’t know about you, but paying an  interest rate of 20-plus percent just doesn’t make sound financial sense in any way. Yeah, I thought you might agree with me there……so why are so many people racking up the debt, month after month, with no hope of paying the balance, in full, when it is due each month?

But often it’s not just the credit card debt that requires monthly servicing, but also the student loan, the money borrowed from parents, a bank loan or two, and to top it off, the hire purchase payments on the car, TV and jet ski!! No wonder financial advisers refer to it as a “debt snowball”.


“If you borrow even one dollar for anything other than your primary house or a profitable investment,  the very next dollar you can get your hands on should go to paying that back. You don’t space it out all nice and casual with “monthly payments”, and you don’t have a “budget”, “entertainment allowance”,  or any other such nonsense. You don’t start a family or get yourself a dog, and you don’t go out for drinks and dinner with your friends. There will be plenty of time for these things later, and they will feel much better when they are not set against the backdrop of Incorrect Debt Due to Error.” (Mr Money Mustache)

get out of debtAs Mr Money Mustache rightly points out, every dollar of interest you pay to a credit card company or a lending company is stealing it away from your own financial goal. It’s another dollar that won’t be working for you, but is gone forever.

But what if your current debts have already spiralled out of control? What if you are one of the many who feel that they are drowning in debt and can’t see any way out? What if you are already paying so much in interest that you are not even making headway on the debt itself?

Well there is a way out of it but it’s going to take some hard work, some sacrifice, and some serious dedication.

JD Roth from Money Boss, compares paying off debt to making a great investment as every dollar you pay back has the effect of earning you the equivalent annual return that you have been paying in interest. In other words, if you’ve been paying 22% on your credit card, then every dollar you pay off earns you the equivalent tax-free rate of 22%. And they’re pretty good returns in anyone’s book!!

JD also points out the other, non-financial benefits of paying off debt, including;

  • Simplicity. The more debt you have, the more bills you have. One of your goals as a money boss is to create a simple, efficient financial infrastructure. Each time you pay off a debt, you move one step closer to this ideal.
  • Cash flow. Whenever you eliminate a debt, the money formerly used for that monthly payment becomes available to pursue other goals – including fun stuff like ski trips and knitting supplies.
  • Freedom. When you have monthly payments to meet, you’re chained to your job. You’re unable to take risks. Once your debt is gone, a wider range of options becomes available to you.
  • Peace of mind. Best of all, once you’re debt-free, you can sleep easier at night. You’ll put less pressure on yourself, and you’ll have fewer fights about money with your partner. (

“So how do I go about getting out of this financial crap that I’m buried in up to my armpits?” you say.

So now let’s turn to our third, respected financial blogger, Adam Baker from Man versus Debt, to bring us home on some proven ways you can dig yourself out of the cess pit of debt.

Like I said, depending on how much you owe and how many debts you are carrying, this is going to take some hard work and dedication, but the end result will be worth it.

The two most referenced methods to pay off debt are;

Debt Snowball

This method encourages paying off debt by focusing your efforts on the lowest balance debt first.  In theory, knocking out your smallest debts will help encourage confidence and build momentum. In addition, many people find themselves overwhelmed simply by the number of different debts they owe.  In these cases, one less debt can go a long way in helping an individual grasp their situation even better.

In some specific cases, though, totally ignoring interest rates can end up costing you a lot of money.  The biggest downfall of this system is the assumption that eliminating the next lowest balance will always build the most momentum. This simply isn’t always true, especially for different personality types.

Highest Interest First

By paying off your debt in order of the highest interest first, you ensure the quickest theoretical finish.  Therefore a successful attempt utilizing this approach will result in paying out the least amount of money.  This is very desirable among individuals who draw inspiration from detaching themselves from the emotions of debt altogether.

The biggest problem I have with this method is in the assumptions of a large amount of its supporters.  You commonly hear that this is the only “logical” choice, or the most “mathematically-correct” method.  The only reason you would not want to follow this is if you were “struggling” or if you were “irresponsible” or “lacked control”.  I hear this kind of thing so much, it makes me want to vomit.

There is nothing wrong with simply choosing between two benefits, especially when one meshes better with your personal tendencies.  My only problem is when there is a pretence that no benefit exists in any other method.  Don’t forget that probability of success is a very “mathematical” concept. Or ignore the fact that it just might be the most important part of this equation.


However, Adam has a third method he refers to as The Debt Tsunami…….


What Role Do Our Emotions Have in Paying Off Debt?

For most people, the process of debt reduction is an emotional one.  Often times, people allow their emotions to freely dictate their behaviours, which plays a significant role in deepening the levels of debt.  There are two solutions to this problem.

  • Attempt to remove emotions from the process completely. This is really what the “highest interest first” crowd tries to teach/implement. It’s the “logical” choice.  The “mathematically-correct” approach.
  • Recognize the emotions, identify with them, and leverage them to help you. I strongly prefer this approach. Rather than fight to eliminate them, I’d rather install new methods for handling them that embolden my values.

Why The Debt Tsunami Works

A major advantage of the Debt Tsunami approach is its flexibility.

For example, let’s examine the story of a fictional young couple whom is truly overwhelmed.  They’ve recently taken back control of their spending and have a firm grasp on a budget.  However, they are left starting at 12 different debts spread out amongst credit cards, car loans, two mortgages, and even family members.

In this case, the couple could receive a lot of benefit from the debt snowball approach.  Eliminating the smallest debts first would allow them to quickly simplify, build momentum, and reinforce the positive changes they’ve recently made.  However, let’s say the three smallest debts are a $500 credit card, a $700 credit card, and a $1000 loan from the in-laws.  Unfortunately, the $1000 loan to the parents has caused some tension within an otherwise great relationship. The young couple would receive much more emotional benefit from eliminating this debt first.  They would earn a piece of their dignity back, which would be priceless over the long journey ahead.

On the other hand, let’s view an example using an individual whom is very detailed oriented and excels at removing emotions from the process altogether.  He too has recently drawn a line in the sand, but for him he sees no benefit in paying off his $500 loan from a family member.  It hasn’t changed the relationship and was given interest free.  Why would he pay it off now? He attaches no emotional benefit from this accomplishment.  Instead he’d rather focus on his $6500 dollar credit card at 12.5% interest.  He receives the most emotional validation from knowing he is pursuing the “optimal” method. He draws inspiration from knowing he will be out of debt two months earlier.  He plans to celebrate by spending those months backpacking overseas.

In this scenario, our hero takes a totally different approach, but still is paying of the debts which have the biggest emotional impact given his values.

This is why I’m a huge fan of the Debt Tsunami. With all this flexibility, though, it’s easy to fall into a “do whatever works” mentality.  This doesn’t produce great results for a large majority of people.  Too much flexibility and we lose the awesome benefit that comes with a well-written plan or a set of easy-to-follow steps.

To read Adam’s full article and to develop your own step-by-step strategy using The Debt Tsunami method, go to his website,

Did you ever find yourself buried in a seemingly endless spiral of debt, and managed to dig your way out? Are you currently in this position and looking for a way to start digging? Has this article been of any help to you, personally. Join in on the discussion by leaving your comments below.

Next week, my lovely other half, Ms MM (her initials, not related to Mr MM), and I are off to New Zealand for a couple of weeks to take care of some rental property business. But I’ll also be showing Ms MM a bit of the upper North Island as well since she hasn’t seen any of that part of NZ before. We’ve planned on using Airbnb accommodation on our travels so I’ll make sure I get the inside from our hosts on how this side business has worked for them. I have suggested previously, that using a spare room may be an option for you to help boost your FIRE stash so I look forward to sharing our experience with you. Until then, have a great week.

PS. Please check out the Get FIRE’d asap Facebook page as well.

11 thoughts on “Getting started part 3 – First things first……Get out of debt”

  1. Excellent article on a very important but sometimes dull topic.

    I particularly liked how you gave a balanced approach to getting out of debt. As you rightfully say the best mathematical way may not be right for everyone. As with most things in life it is about our emotions and been able to stick to it.

    Good luck on your trip to New Zealand it is way up there on my bucket list of places to visit.



    1. Thanks Richard. I wish I could take full credit for the article but the best bits are courtesy of some of the most respected bloggers out there. My goal is not to reinvent the wheel especially since there are farbetter wheel inventors than me out there but bring the best of the best together in one place.

      Yes, looking forward to the trip. Do keep it on your bucket list. It’s well worth a visit.

  2. Really nice post. We have made a life choice to not get into any debt except perhaps a mortgage. Do everything from a position of power and strength.

    The only tiny thing I’d add is paying off the minimum repayments amount on all debt, then do the highest interest one.


    1. Absolutely agree Tristan. No debt equals no dependence equals position of power. I have to admit, it’s been a while since I was in debt so I sometimes forget the ‘rules’ of debt repayment. Always happy for a reminder. Thanks for your input.

  3. There is so much good advice in this article. I really like the discussion around emotions.

    It has taken me a long time to realize that emotions really can’t be controlled. They happen. They are a chemical process going on inside your body. You will get angry, scared, excited.

    You can’t stop the emotion, but you can control how you react to those emotions. Just because you are furious at someone doesn’t mean you need to yell and scream.

    Learning to control your behavior is so valuable in business and in life. And that’s certainly the case when dealing with debt. You can’t just ignore the emotions. You need to acknowledge them and decide that you won’t let them dictate your behavior.

    Then just start moving forward. Action gets things happening. Take one forward step at a time no matter what approach you use. And eventually, you will see progress..

  4. Great article! The emotional impact of killing debt is HUGE. I think each person (or couple) needs to decide which method of debt pay-off is best for their individual situation. Mrs. Superhero and I have created our own hybrid method and will be free of non-mortgage debt in the next 2-3 months if all goes to plan.

    1. Absolutely, and at the end of the day you should use whatever works best for you. If its sticky notes all around the house reminding you, or a weekly routine to remind you of where you should be, then do it. Congrats on being so close to debt free.

  5. I completely agree that people need to address their debt situation before they can really move forward in revamping their financial life. Everyone always wants to start investing since it is sexier, but if you are paying a high percentage on your debt, your investments are just going to lose you money overall.

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