Week 4
Debt Demolition: Strategies to Blast your Balances

We discuss how companies put you into debt, how they market it, profit from it and how you can avoid it.

Week 4: Debt

We discuss how companies put you into debt, how they market it, profit from it and how you can avoid it.

Compounding and Debt

We rewrote week 4 this year to change the flow and to start with compounding. The reason we did that is because if you are in debt compounding works against you and if you are investing compounding works for you. People always say I can never get out of debt, or I can never earn enough to be financially free. The secret is you don’t have to. Let Compounding do the work for you.

Debt, Debt, Debt. It pulled Alan’s family apart and the Donegans are on a mission to stop it doing the same to other people. This week we discuss how companies put you into debt, how they market it, profit from it and how you can avoid it. Katie also goes through the mathematically best way to get rid of debt!

Even if you don’t have debt, this week will be useful to help others, protect your family and avoid future problems.

​Let’s get out of debt and start taking control of our own finances! When we do this we are starting to put compounding to work for us!!

This is a big topic! We think about this in 3 parts….

  1. Compounding: how it works
  2. How we get into debt
  3. How we get out of debt

1. Compounding

Albert Einstein is reputed to have said “Compound interest is the eighth wonder of the world.” Katie Donegan says:

“He Who Understands It, Earns It; He who Doesn’t, Pays It.”

Compounding is actually incredibly difficult for the human brain to comprehend. We are all quite often left baffled by it and its power. Katie and I were baffled at the start of our financial journey because nothing happened, it felt like our finances weren’t moving, it felt like we weren’t going anywhere!

Fast forward to now and we are baffled that our wealth is building so quickly. This month our net-worth increased by £54,000 which is an astronomical amount. You might be thinking “Donegans why are you telling me this?” The reason is because compounding can be your friend if you are investing or your enemy if you are in debt.

This is even more impactful because we don’t really understand logically how it works. So don’t trust the Donegans, trust the maths.

Early Ellie & Late Larry

This week Katie introduced us to three characters. In the first part of the example, Ellie and Larry came on Rebel Finance School and did all the investing weeks. Ellie got super excited and jumped in and started investing. She put £200 a month into her investments for the next 20 years.

Larry on the other hand loved the course but was nervous, he let his fear get the best of him and then forgot about investing. He didn’t do anything for ten years. Then he got another email from the Donegans, thought “oh poop, I had better get started”, did the investment weeks again and then started investing. To make up for lost time Larry invested £400 a month for 10 years!

So both Larry and Ellie invested £48,000 in total.

Who do you think had more by the end of the 20 years?

You probably guessed it! I think the real question is how much more did Ellie have after that period?

They invested the same after all! The people live on the course guessed and said maybe £25,000 more or maybe she had an extra £50,000!? Let’s see the actual results.

Early Ellie got on with investing and got her money in the market and it started to grow. This gave a bit more time to compound than Larry.

By the end of the 20 years Ellie had over £200,000 in her account when she had only invested £48,000! She quadrupled her money.

Katie created this chart using real market data from the last 10 years.

Larry had doubled his money. Yay. But the opportunity cost is huge.

Why are we telling you this? To help you understand that the quicker we take action the quicker these things work for us. If we take action on your debt now then we reduce the negative effect of compounding working against you. If we take action now and get you investing, your money has more time to work for you.

This is the point when people normally go, “I am too old for compounding to work for me. Its too late for me!”

Compounding starts taking effect from when you invest your money. You might be 60 and only have on average 22 years left to live. That is still a LONG time! Compounding will start working for you and continue throughout your retirement!

Everyone is better off than Never Bothered Ned. Ned came on the course: said to himself “It’s all right for these young people, it’s too late for me” and he gave up. He never did anything.

It isn’t too late for you to make a difference. If you are still breathing we can improve your financial situation! Let’s do it together!

Gappy Gloria

Katie and I keep coming back to your gap. This is the foundation of everything we are talking about. If you don’t have a gap yet then this is where we need to start! We need to reduce expenditure (watch how to live large for less) and then we need to work to increase income (watch Salary Trap: how to break free and increase your income)

The gap is what we use to get you out of debt and investing. This is the critical step! It will make all the difference.

In the course Katie then introduced us to Gappy Gloria. Gloria took the course, she got inspired to work on her gap and started improving. She started investing the same as Ellie, £200 a month straight after the course. However Gloria watched the gap workshops and learnt and implemented. She increased her gap by just 1% a month.

Could you increase your gap by 1% this month? That might be saving a tenner, or doing something super small to earn more like selling 1 old book from the house. Gloria consistently did this over time increasing her gap. What do you think that did to her net-worth at the end of the period?

If Larry and Ellie invested £48,000 each and got to £100k for Larry and £200k for Ellie where did Gloria end up?

Gloria with those small increases over time trounced everyone! She ended up with £540k to her name that she could use for living in retirement! The power of compounding doesn’t only work for your investments it works for your skills and your improvements. Small improvements compounded over time create incredible outcomes.

I’ll never earn that much!

The next objection we normally get with our work is, “I’ll never earn that much.” People get excited about getting on top of their finances and then when we are talking about investing, saving, and how much money they’ll need to retire they get overwhelmed and give up. They think to themselves, “I am in debt, I am never going to earn that much money!”

What we want to say to you is that you don’t have to. You don’t have to earn all the money, if we get you out of debt so compounding isn’t working against you and get you investing then compounding will earn the money for you!

In our examples all three people didn’t earn the majority of their money. They got it as a return on their investments. You don’t have to make all the money. If we can get you out of debt, stop compounding working against you then get you investing and it working for you, you will be amazed at the impact.

You don’t have to do this all yourself. You have a superhero (compounding) on your side. Put it to work and you will start to see phenomenal results over time.

Compounding is a double edged sword

If you are in debt then that debt is compounding against you. The people that lent you the money are profiting, they are making a profit on the profit. You are making them rich.

Look at the graph to the right. We want the chart on the left where your money is working for you. We want to avoid the chart on the right where the debt is working against you. On that note onto how to conquer debt!

2. How do we get into debt?

It’s so easy to get into debt!

There are three main ways we go into debt…

  1. Life happens. Unemployment, redundancy, reduction in income, illness, worldwide pandemics…
  2. Companies want you to go into debt and have all sorts of tactics for getting you to borrow money from them. They don’t call it “debt” they have far sexier terms like “here’s some credit” or “why don’t you put it on finance”. These are all code terms for DEBT! We want you to be wise to it.
  3. Ourselves: We do things to ourselves. We accept high interest rates, we have unhelpful spending strategies and we play the game of finance with credit card companies (and lose.)

3. How to get out of debt: ​The debt attack strategy

Katie and I did a lot of study into the most efficient ways to get out of debt. We then added our own content, things that people hadn’t considered and we developed our own strategy. We call it the debt attack strategy.

It is the most efficient way out of debt and if you work it can create a huge impact in your financial life.

The debt attack strategy has 8 steps. Designed to take you from where you are all the way through to getting out of debt.

Visit this page to get the full debt attack strategy. We didn’t want to have it in 2 places on our website as we are constantly working on it and improving it.

This week Katie and the Rebel Ninjas also created a debt attack calculator as well which will help to crunch the numbers and makes the whole process easier for you. Find the Debt Attack Strategy calculator here.

Student Loan debt

Student loan debt is a big subject. We are more experts in the UK system and we don’t know as much about the American System. Click the button below for our full article about Student loans or watch the video to the right where we coach a past participant of the course, on how to think about his loans and debt.

For the American system we think ChooseFI is an incredible podcast and resource. Start with this episode on Student Loan Debt Repayment.


Mortgages are one of the biggest debts we normally have as individuals. The bigger house you buy the bigger debt you will have. They are normally in a slightly different category as typically they have lower interest rates. This changed as interest rates rose last year and some people ended up with interest rates as high as 7% and 8%! Suddenly mortgages became expensive debt!

In an effort to help the Rebel Ninjas, Katie and I wrote 2 different articles this week. The first is, “Should I pay off my mortgage or invest?” and the second is, “My mortgage has gone over 5%, does that mean it is now expensive debt and I have to ditch my whole emergency fund against it?”

Here are the two articles to help you think about mortgages.

How can we protect ourselves?

Once we are out of debt we need to protect ourselves from this happening again! We don’t want the debt to come back. It is a bit like going on a diet, doing all that hard work and then the belly bounces back because you go back to your old habits.

If you do what you have always done then you will get the results you have always got. You have to change for this to change.

We can protect ourselves from this by building an emergency fund in the good times, changing our spending strategies, and learning how companies sell us debt. Below are 8 ways to stop the debt from ever happening again.

Eight ways to stop debt from happening to us again. It is SO IMPORTANT that we have a good defence against debt happening to us again. If we don’t cure the actual problem then it is something that is bound to repeat again! A good defence starts with a strong emergency fund.

  1. Have an emergency fund – this protects you against so many things. If you lose your job, the car breaks down or you fall ill, the emergency fund protects you and stops you going back into debt. This is SO important to build.
  2. Sell off big liabilities – if you own big liabilities like cars, motorbikes, bike or houses, then these not only lock away money you could use but COST you money in maintenance and insurance each month. SELL off the big liabilities in your life and use the money to stock your emergency fund.
  3. Buy small liabilities – if you are going to buy a liability like a car then buy a small one that doesn’t cost too much to run. This way less money is drained away from you each month
  4. Create a huge gap – do everything you can to create a huge gap between your expenditure and income. The bigger the gap the easier you will find it to ride out problems and avoid going back into debt.
  5. Change your spending strategy – we talked a lot about spending strategies. Instead of 1-click purchasing on Amazon put it in your basket, set a reminder for a week and ask if you really need it a week later before buying it. Instead of just buying things now ask, can I afford this from positive balance not credit? Can I get the same value for less money and could I buy my freedom instead?
  6. Cut up your cards – as you saw Jason do on the call, cut up the cards. If you can’t resist the temptation then cut them up and get rid of them all!
  7. Monthly finance meetings – we will be going into how to run these in week 5. What get’s measured get’s improved so track your progress each month and discuss what has happened!
  8. Teach your family sales – the more you understand sales the more you will be able to defend yourself from the sales techniques companies use against you. Learn sales and teach your family. Maybe start with the book, “Influence” by Robert Cialdini.

Do you trust yourself with credit cards? If not, cut them up! Make sure you have an emergency fund. Sell any big liabilities, if you can. Change your spending strategy. Have a monthly finance meeting.

Protect yourself in the ways we described earlier in the article to avoid this ever happening again. We don’t want this to be a yo-yo financial diet. You know the thing when you diet strictly with food, lose a lot of weight, celebrate success and then bounce back to your old weight in a year.

Avoid this and use these tools to avoid this ever happening again!

Use our debt attack strategy tool to work out the order of your debts to pay off and how long it will take: Debt attack calculator.

Further help on debt

This article from Money Saving Expert has some additional tips and ideas for how to pay off debt as quickly as possible: Debt help plan

Debt warning

​For a recap of the key concepts about debt and a warning about avoiding it, please read this blog post and share with your friends: Debt Warning blog post


To get the most out of this course you must do the homework! Here is the homework for week 4…

  1. Make a plan of ATTACK for your debt. Read the debt attack strategy, watch our YouTube video on the debt attack strategy. Understand it from different angles then create a plan to get out of debt as quickly as possible.
  2. If you have student loans, read the Student Loan page here and work out if you are going to pay it down quickly or treat it as a tax on your income.
  3. If you have kids or any other younger people in your lives, think about how to help them avoid debt.
  4. Have you done the homework from the first 3 weeks?
    If not go back now and do it! Consider doing some of the optional exercises you might not have got round to yet. Continue journaling about money and notice if any thoughts, beliefs or values have shifted. You can find all homework for previous weeks here: Week 1 | Week 2 | Week 3
  5. Come up with ways to increase the gap between your income and your expenses. On the expenses side, one way of doing this is to go through each of your spending categories and see if there’s anything you could cut. Remember, this is not about deprivation this is about conscious expenditure.​

Discussion questions

So that you have them all in one place, here are the questions we discussed during week 4.

Company strategies for putting you in debt

  • How have you fallen for these in the past?
  • What have you learned?
  • How aware are you of these tactics?
  • How aware are your family of these tactics?

Our strategies for putting ourselves into debt

  • What are your spending strategies?
  • What do you say to yourself before or as you are spending money?
  • How do you use credit cards? Or are they using you?
  • How are you going to change your spending strategies starting today?

Debt recap

  • What have you learnt about debt?
  • How will you share this with the next generation?
  • What’s your biggest take away from the debt attack strategy?

Ask for help

Remember to reach out in the Facebook group with any questions you have or if you get stuck. Don’t let confusion be an excuse for not progressing with this stuff. We are here to support you!

Got more questions!?

We know it is a lot working through all this and we are all here to support you. You can use the link below to submit questions for us to answer during the Thursday Q&A sessions. Whilst we aren’t running the course the questions are best put in the Facebook Group.