Pay Off Your Debt, Live Your Life

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You have got to get out of debt. We are heading into a future filled with debt. We live in a world full of skyrocketing tuition fees, a bad economy, rampant credit card use, and poor housing markets. All of this has essentially left Gen Y with gobs of debt and not many ways out. But you can do it. It might take a long time, but you’re going to have to do it some day, and the longer you wait, the more you have to pay. It’s time to start now, because you have to get out of debt you must.

The importance of getting out of debt

Your money should always be doing something for you. It should be invested, sitting in an emergency fund, wrapped up in a house, purchasing utilities, getting you an education or incubating in a savings account earning from the interest. Whatever it is, your money should be Doing Something.

Your minimum payments, however, are often just vanishing away, paying off the interest and barely making a dent in the principal. Once you reduce or eliminate your debt, you’ll be able to put that money towards doing something for you. Gen Y, saddled with credit card debt and student loans, are often paying upwards of six hundred dollars a month towards paying down their debt. That means that seven thousand dollars a year are going towards paying debt. Once you eliminate your debt, that money becomes free. And the younger you become debt-free, the better off you are.

But reducing substantially or eliminating debt in a short time isn’t impossible, it just takes dedication and a plan.

A plan

Paying off your debt might take you five years. It might take you ten. Either way, you’ve got to get to it someday, so you may as well start now.

If you want to pay off your $17000 debt in five years, you’ll need to calculate how long that will take you, taking into account the interest. First, make a list of all the balances you owe.’s LaToya Irby suggests listing it similar to the following, in the format of Name, Amount Owed, Minimum Payment, Interest.


  • Visa card, $780, $47, 11.9% 
  • Mastercard, $1515, $89, 18.9% 
  • Line of credit, $900, $55, 7.8% 
  • Student loan, $17000, $282, 10%

This will give you a good idea of your debt. With that done, you can start planning to pay it off.

Paying your debt off

Figure out a monthly payment, based on a time period you give yourself. You can use an online tool like Bank of Montreal’s Loan Calculator to figure out what your monthly payment needs to be to pay it off.

For example, a $10000 debt, with a 6% interest, will be paid off in three years with a monthly payment of $304. Want to pay it off in two years? $443.21

Figure out how much you can pay based on how much you can afford. Then start using that monthly amount to pay off the smallest balance first.

Don’t pay the minimum payment only. Irby writes, “If you only make the minimum payment on your credit card, it could take years to pay off the balance. Not even that, you could end up spending hundreds, possibly even thousands, in interest by the time the balance is repaid.”

J.D Roth, of Get Rich Slowly, writes, “Pay the minimum payment on all debts except for the one with the lowest balance. Throw every other penny you possibly can at the debt with the lowest balance.”

Once you clear that debt, move to the next one. 

Roth calls this the Debt Snowball, a method that has the added effect of encouraging you to keep paying.

The psychological boost of being able to paying off your smaller debts fully is one of the biggest reasons to pay off the lowest balances first. Roth writes, “The important thing to do is to set up a system of positive reinforcement, and that’s exactly what the Debt Snowball method does.” He later adds, “In four months I’d paid off most of my debts. I was shocked. I’d been trying and failing for years, and now I was able to make a huge dent in just months.”

Being able to pay off debts keeps you to your budget. “The most important thing in paying off your debts is to pay off your debts,” he writes. “The order in which you do so is ultimately irrelevant.”

Now that you have a monthly amount and a time period, you may need to cut back on some things. It might be time to eliminate some expenses.

Eliminating expenses

This is the tough part, the part where we start to cut a little into our way of life. This is where vigilance and money-smartness starts to come into play.

Make a list of your estimated expenses for the month. It doesn’t have to be accurate to the letter; estimations are just as useful. How much are you spending on eating out during the week? Do you buy four-dollar lattes? How much on going out to bars and clubs? How much on shoes, clothes, movies, etc.?

Cutting expenses is often just practical. Sometimes, even when we make what should be more than enough, we spend too much. The Minimalists’ Joshua Fields Millburn wrote, “I used to spend more than I made, even when I was making well over six figures. It didn’t matter because I was spending more money than I brought home.”

Millburn recommends making a list of your absolute expenses, that is, what you need to live your life: rent, utilities, gas, food, phone, etc. After that, start cutting where you can.

For example, if you get a latte at Starbucks three times a week, that means you’re dropping around $48 a month, just on espresso and milk. That’s $576 dollars a year. That’s almost the cost of your cable bill. Cut it down a little, and that money can go towards your future debt-free existence. Maybe make the latte a once-a-week expense.

But be realistic. NCN of No Credit Needed writes, “Do not build your debt reduction plan around unrealistic expectations. If you have never been on a budget, don’t expect to have a ‘perfect’ month right off the bat. Realize that it takes time to change behaviours, attitudes, and habits. Create a realistic plan.” 

You should also stop accumulating new debt. J.D Roth writes, “This may seem obvious, but if your debt is out of control, it’s because you keep adding to it. The first step on the path to debt freedom is to stop using credit. Don’t finance anything. Cut up your credit cards.” This means stopping anything that automatically renews on your credit card.

Above all, don’t stop saving. You should still be saving a percentage of your income, on top of your debt payments. Always incorporate this into your expenses. And don’t forget about emergency funds. NCN recommends keeping at least $1000 in your emergency fund. 

  • Open Excel or Notepad and make a list of your expenses
  • Separate your absolute (necessary) expenses from your unnecessary expenses
  • Compare the lists. What can you cut down on? 
  • Be realistic. Don’t condemn yourself to a life of asceticism, but cut where you can
  • Don’t accumulate new debt
  • Don’t stop saving
  • Don’t forget about your emergency fund
  • Make your monthly payment
  • Once your lowest balance is paid off, move to the next lowest balance and keep paying

Don’t give up. Focus on what a debt-free lifestyle means for you. It means your money will start working entirely for you. You’ll be financially healthier for when the next major payment comes up. And it will be your first step towards total financial dependence.



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