Create a strategy


All wealth creation and success in life involves having a strategy, whether it be an investment strategy, a tax strategy, finance strategy, loan strategy, diversification strategy, income strategy and many more. This, of course, includes a debt reduction strategy.

From a debt reduction strategy, there are a couple of ways you can go about this, lets discuss a couple of approaches now.

Where to start and what to do

There are a couple of key things you
absolutely should do for every debt you need to pay off.

1. Find spare cashflow in your life to start paying more than the minimum balance on one debt. Take the time to get clear on your finance situation and understand where your money goes and flows.

2. Call all of your utility, insurance, communication and lending institutions you have accounts with and negotiate a better deal. You would be surprised how often a better deal is available, simply by asking! A better deal might

be in the form of a lower interest rate or a long term of payment or a different method of payment, anything. Decide what you ideally need to work through this debt, write it down and ask. What is the worst that can happen? They say no. Well worth the effort

3. Create an order of debt repayment– I’m going to go into more detail on this below

Your order of debt repayment

Deal with the urgent

It makes sense that some debts are more urgent than others, if you have debt collectors chasing you, then just leaving it and hoping it will go away will not work. You obviously need to take care of these first while maintaining the others, so you can save yourself from mounting costs, so you can save your credit record and importantly save your sanity. It is not a good feeling having to deal with urgent things all of the time and have them constantly hanging over our heads, we wind up in a constant reactive state which forces us to focus on constantly putting out fires instead of focus on the really important things in our lives. Make a plan to deal with the urgent first or even better call your creditor and negotiate the terms of the debt and try to make it ‘not urgent’, so you can then deal with all debts equally.

Highest interest first

From a pure financial perspective, it is always best to begin eliminating the highest interest rate debt first, as this is where you are going to save most cash. Start with the debt with the highest interest rate, pay the minimum on all of your other debts, but maximise your attention on these first because they are the ones, which are costing you the most.

Lowest debt first to free your mind

Now notice above I said that focusing on the highest interest rate first is the most effective financial strategy to eliminate debt, however there also a psychological component to this that we have to take into consideration which can in fact have an equal impact on your overall ability to ultimately eliminate your debt. Especially when you have multiple debts and a lot of it, it can often feel such an insurmountable and unachievable task and it can put us in a state of feeling helpless, which is not a very resourceful state for us to operate from, so apart from the financial strategy behind debt reduction, the psychological state you need to be in is just as important.

When you order your debts from the lowest balance to highest to eliminate first, you gain more momentum. When you can start ticking off different debts, you can see the tangible results of your strategy and can see your progress. Progress creates momentum, momentum increases commitment and when you get on a roll, things just start to happen faster and your debt, feels like less of a burden, it actually feels like a challenge to conquer and overcome and you now gain the belief in yourself that you can do it. Momentum is a very powerful force and once the debt has been reduced, take this momentum into your future wealth creation.

Which order you choose will very much depend on who you are and by understanding your own personality, motivation and commitment you have. I know from experience of working with hundreds of clients on reducing the debt in their lives and getting them on the path to creating wealth that both are equally as powerful.


Snow ball it

This is a very simple concept, but very effective. Right now we have been focusing on paying the minimum payments on the majority of your debts and just focusing on one. Once that first one is paid off, you now need to take the minimum you were paying on that plus the extra cash you had committed and begin focusing on your second priority debt. Once this has been paid off, now take everything from the first two debts plus the extra cashflow and apply to the third and so on and so on until they are all eliminated. Because you are taking your minimum amounts and continuing to roll it down the line of debts, it creates a snowball affect, which rapidly eliminates your balance. Very effective and satisfying to watch in action.

You might also be interested in Time to Take Control of Your Finances.

Treat your money like a business


After you have done all of this, you obviously want to make sure that you never get into the debt trap ever again and more importantly move onto creating wealth. Unfortunately most people only seem to manage their money when there are bills to pay and there are emergency situations or are massively in debt. But you know yourself, if you spent time on the front end being proactive about managing your money, frankly you probably would not be in this situation in the first place. Now you are here however; begin immediately being proactive with your financial management and treat your financial life like a business, and the key thing to any successful business is profitability.


understanding1 Find out where you are right now? Do up a profit and loss statement and balance sheet for your life. What debts do you have? What assets? What cashflow do you have coming in or going out? Create a budget which is going to put you into profit on a weekly basis
understanding1 Track your spending for a couple of weeks (ideally 4 weeks), buy a little note pad and carry it with you everywhere, or download some cool mobile apps or link your bank accounts to a spend tracker. There are some amazing tools out there. Not only will this give you massive clarity around where you are right now and where your money is going, it will also make you accountable every time you pull your wallet or purse out to spend money. You will start thinking twice about every purchase.
understanding1 Get clear on where you are going. When you have a strong purpose and a strong set of goals behind your wealth creation and why you want to generate wealth in your life, you generate some seriously strong commitment to staying true to your purpose and your goals.
understanding1 Create a financial and investment plan – Begin reducing bad debt and then create a plan for wealth and investing in growth assets. If you are not sure how to do this, get a coach for goodness sake, someone who can help you get on the right track. If you get the right coach, the money it costs you to hire that person should be returned to you in far greater abundance. By the way, a financial planner is not necessarily a good coach or has ever created wealth for themselves, yet they still feel they can teach it. Look for results, not qualifications. Qualifications are easy, results are much rarer.
understanding1 Plan for challenges – If you know you have a spending problem, stick a post it note on your credit card with a question “do you really need this?” Give yourself pocket money every week and leave your cards at home. The point is, plan for the challenges, which may pop up in life and be honest about your own strengths and weaknesses and make plans to counteract them.
understanding1 Schedule regular review times. One of the most powerful habits you can create in your life is a wealth night; time set aside once a week where you purposefully manage your money and review your outcomes- when I did this in my life and the feedback I have gotten from many clients I have put onto this habit has been that they feel so in control of their finances often for the first time, instead of feeling constantly at the whim of their money.

Other interesting reads:

Understanding Debt and How To Free Yourself From It Part 1

Increase Your Income To Reduce Your Debt

Getting In Harmony With Your Money

Design Your Epic Life

Download Your Free Copy of Design Your #Epic Life

To DOWNLOAD the Design Your #Epic Life for FREE, Sign-up Here.

Leave a Comment