Get Out of Debt, Part 1: Stop the Bleeding

The blood money of debt

Several years ago, I had a mass of debt that I just couldn’t shake free.

This might sound familiar if you’ve ever struggled with debt yourself. I’d gain a little ground and pay some of it off, and then a couple months later I was right back where I started. Whenever I worked out a plan to get out of debt, the numbers always told me it would take a few years to pay off.

But it only took me one year.

This is a 3 part series on how you can get out of debt.

You Have to Stop the Bleeding First

Just like running a business, your personal finances have 2 components; income and expenses. When your expenses are greater than your income, you’re digging yourself deeper into debt. And this can happen gradually over time, or it can happen after a catastrophic event in your life.

You have to deal with these expenses before anything else. Just like a trauma surgeon, you have to stop the bleeding first.

Make Two Lists

The first list, we’ll call Fixed Overhead. These are the regular bills you have every month, including your minimum debt payments. Things like the mortgage, the electric bill, cellphone contract, car payments. Make a list of everything.

The second list, we’ll call Variable Costs. These are things that you buy all the time where the costs change depending on what you’re doing, and how much of it you’re doing. This is everything from buying coffee on the way to work, to food, to entertainment, to buying a big screen tv.

Between these two lists you should account for every single dollar that you spend on a monthly basis.

Now Use these 3 Simple Rules

To get out of debt and get your life back requires change. To make that change happen, you have to change the rules. There are 3 rules and you have to apply at least one of them to every single thing on both your lists.

Rule #1: Simplify

Simplifying your life is the simplest way to cut your expenses. There are things you have that you just don’t need. If you get the newspaper delivered, have an internet connection and 300 cable news channels, it’s time to simplify. Pick one.

A friend of mine got rid of her house phone and just kept her cellphone. Get creative.

Rule #2: Downsize

Downsizing means getting rid of things you have that are a big drain on your cashflow and replacing them with cheaper options. And downsizing usually works best with big things like where you live and what you drive.

It means getting rid of that massive $600 a month SUV lease payment. Sell the truck or find someone to take over the lease. Get yourself into a vehicle that’s half the price. Or take it a step further and start commuting. Take it another step and you might buy yourself an old bicycle at a garage sale.

Whatever it takes.

And when you downsize something you own (an asset), you’ll lower your monthly costs, and end up with some extra cash in your pocket too.

Rule #3: Replace Old Habits

Some things are not easy to simplify. If you’ll absolutely die without your morning coffee, then instead of cutting it out all together, start brewing yourself a cup and taking it with you. You’ll save an enormous amount of money over paying 5 bucks a day for capo grando whatever-o.

And even if you have to buy a coffee-maker to replace the habit, the money you save will pay for it in a week or two. That’s a killer return on investment.

Replacing old habits also works great for cutting back your entertainment budget. Spend more time with your friends and family instead of going out to costly events. Or find a new passion or hobby that can fill your time without emptying your wallet.

It’s Time to Get Started

Even if you’ve already cut everything you think you can, make your lists and apply the rules. It’s a very powerful exercise and you’ll find things you don’t need, things you need less of, and things you can replace.

In Get Out of Debt, Part 2, I’ll give you some action items to help wrestle your debt down to the ground and build up the income side of your finances.

14 thoughts on “Get Out of Debt, Part 1: Stop the Bleeding”

  1. Several years ago, I had a bad debt situation, things reached a point when the only option was to jump to another country and that what I did. On reaching the new country I got in touch with them and paid it all off. Today I am a different Robin, I don’t owe anyone anything, not even a measly dollar. Helps me sleep well.

    Take care and cheers

  2. Shane,

    Excellent article! Man, you got that right – Stop the bleeding. It’s extremely easy to just live in denial. So many people do that….they just continue piling on consumer debt with credit cards, etc. Then it takes every penny they make just to stay afloat. I’ve been there, and it’s the most stressful place to be in the world.

  3. Hey Robin,

    “jump to another country” … talk about a pattern interrupt! I imagine the change literally forced you to apply a lot of simplifying, downsizing and replacing old habits. Your experience is great insight.


    haha – yeah I like to be bold with the artwork!

    This is just stuff that has worked for me and a few of my friends (tried, tested, and true). But it took a long time to get to the point of “doing it”, even though I knew what to do and how to do it all along …

    I think you’ll like Part 3 of the series. It’s about the stresses, understanding debt and wealth. And doing it.

  4. I’ll be in debt when I graduate college. It’ll be about 30k from loans. I have no clue how I’ll pay it off, but that’s why I want to start a successful business and earn money online blogging.

    I don’t really spend my money on a lot of things. I hardly buy new clothes. The only expense I need to keep my eye on is my food expense – eating out.


  5. Hey Gregg,

    You’re in a good position right now. The only danger is that expenses have a way of accumulating as time goes on … we add “things” and expenses to our lives. We rarely subtract them.

    Working on multiple sources of income is a great plan. As long as you don’t let new expenses accumulate, you’ll have it paid off before you know it.

  6. Nice article! Very true as well. It’s easy to build up debt without really realizing it, then comes the “oh crap” moment when it hits you how much you actually have and then comes the struggle to pay it down.

    Good ideas to stop the bleeding. Thanks

  7. Hey Deron,

    Thanks! Lenders have figured out all the subtleties (they’ve been at it for a couple millennia), so it’s very easy to lose track of how much debt you’re taking on in relation to your income.

    The solutions are practical and tested (I volunteered several years ago! haha) so I hope the series helps some people.

  8. Great article, broken down very well. None of that kiddy college advice like cutting coupons. No bullshit you have to change your lifestyle period !

  9. Very well thought out tips.

    I find that much of my wasteful spending comes from grabbing that coffee every morning because I always end up picking up a danish, cigs, whatever. By the time I leave the store in the morning I’m down 10 bucks. At lunch I pick up food and drinks again, putting me down another 10. That’s 20 bucks right there.

    At the end of the working month I’m down almost 400 bucks in just drinks and such, wow.

    Time to prioritized

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