Debt Attack Strategy

When it comes to taking control of your finances, getting rid of credit card debt and other high interest rate debts is SOO important. Trying to get ahead with your finances whilst having debt is like trying to swim the Atlantic with a 100kg weight attached to you. You’re got a dead weight dragging you down. Time to ditch that anchor!

​Alan is almost 100kg, could you image having to drag him whilst swimming?

If you have debt, you’re in the right place! This is a how-to page taking you step by step through the quickest way to pay off your debt

How to get out of debt

Alan and I like to get things done quickly. Once we decide to do some thing we like to find the fastest way from point A to point B. This is our guide to the fastest way to get out of debt. The image below shows the overall strategy, then read on for an explanation of each of the steps.

Summary guide

We made you a video to take you through each of the steps in the Debt Attack Strategy. Watch the video, pause it at each step and apply it to your situation.

​Or read on for more detail. Or do both! We get geeky and excited when we have a mission and like to do it all!

Important! Since recording the video we have come up with a slightly better way of explaining the strategy. This page has the new explanation and the video has the old explanation. The video still gives you a nice overview of what to do. Check back here for an updated video!

Watch our full debt workshop

On Rebel Finance School, we have a full section on the Debt Attack Strategy in one of the workshops. We go through a detailed case study to show you how to use it. If you prefer to watch than to read, check it out!

When you click on the video it will take you directly to the part of the workshop where we talk about how to get out of debt using the Debt Attack Strategy. Feel free to rewind to the beginning to watch the whole workshop!

Debt attack calculator

We made you a handy tool to help you work through the steps of the Debt Attack Strategy. Once you’ve read this page and are familiar with the steps, you can have a play with it here…

What type of debt are we talking about here?

Generally speaking, we’re talking about *expensive* debt. Anything with an interest rate of more than 5%. However, you should include all debts so that you can understand your full debt picture.

Mostly the debt attack strategy is designed for store cards, credit cards, overdrafts, personal loans and other unsecured debts.

What about student loans?

You’re probably wondering about student loans and how/when/if to pay these off. Read our separate page for our thoughts on those.

What about my mortgage?

People often ask us whether to include their mortgage at this stage. Up until recently, mortgages have been at lower interest rates and the idea is to pay them off over time. However, we know that in recent years mortgage interest rates have gone up massively and some are more than 5%. Whatever the interest rate on your mortgage, include it in your list for now and then you can have a think about whether to overpay it. You can read our thoughts about it here.

Let’s get into the practical steps…

Ok, onto the full Debt Attack Strategy and each of the steps!

We’ve put some ideas under each step – do all of the steps but you don’t have to do ALL of the additional ideas. Don’t get overwhelmed, just pick a couple to start with and get some momentum. Progress and taking action trumps perfection every time!

Step 1. Crystal clarity: clearly understand your debts

Clarity is power. You need to understand what debt you have before you can come up with a plan for paying it off.

WARNING! This step *might* bring up some emotion. You might be annoyed at past you for getting you into this pickle. You might be disheartened at how much debt you have. You might be pleasantly surprised and relieved that it wasn’t as much as you thought. Expect the emotion. Expect stuff to come up. Whatever the emotion you feel, notice it, breathe through it and move onto the next step. We got you! And the final step of the process is going to make sure you’re never in this situation again.

Ok, onto the first step….

For each of your debts (car loans, store cards, credit cards, personal loans, overdrafts – yes your overdraft is a debt…), find the paperwork and get clear on:

  • Balance (how much you owe)
  • Interest rate percentage
  • Minimum payment

If the deal changes after a certain time (e.g. pay nothing for a year), find out what the payments will be, what the interest rate will be and when it changes. Put a reminder in your calendar of when the deal is going to end so you can reassess.

Include 0% cards because these are a temporary situation. It won’t always be 0%. You have to pay these off too. You can’t just keep shifting it to 0% cards forever. When it comes to these deals, your calendar is your friend. Set a reminder a month or so before the deal ends so you can work out what you want to do with that debt and so you won’t be surprised when they start charging you interest!

As you gather the information, pop it into a simple table like this one… this is a screenshot from the debt attack calculator. You can use the calculator for this step if you like!

Step 2. Prioritise: List debts by interest rate (highest first)

Next, order your list of debts in descending order of interest rate with the highest interest rate at the top.

If you have multiple 0% cards, put the deal that ends soonest first.

Some of the debt strategies out there tell you to do this in order of balance and pay off the smallest balance first but that is a much less efficient way to pay it off. By putting the highest interest rate first and attacking your debts in that order you will pay the least amount of interest.

If you’ve been on Rebel Finance School, you will have heard the Donegans asking “What’s the interest rate?” when people talk about their debt. This is one of the most critical pieces of information we have and one that a lot of people don’t know!

So, over to you… put all your debts in order of interest rates with the highest at the top.

If you use our debt attack calculator, the calculator will work out the priority order for you

Step 3. Reduce rates: Negotiate, transfer or consolidate and re-prioritise

Now it’s time to look at your list and see if you can get lower interest rates on what you owe. Start at the top of the list with the debts with the highest interest rates.

You might be thinking “how?!” Well we have three different approaches you can use…

Let’s look at each of these in turn…

Negotiate

Can you negotiate lower interest rates with whoever you have your debt with… the credit card company, the bank?

The best way to go about this is to call them on the phone and talk to them. Tell them you can’t afford the repayments. Tell them the debt is crippling you. Tell them you are going to need to move elsewhere to get on top of it. Ask for a reduction in interest rates and then go silent. SILENCE is so powerful when negotiating.

You might be thinking “Can I really negotiate with banks? credit card companies?” The answer is YES! You have more power than you think you do. It might not feel like it right now, but you do.

We worked with one couple that called the bank about their overdraft. It was at a crippling 49% interest rate and they challenged the bank about it. The bank immediately put the rate to 0% and gave them time to repay it. This saved them years off their repayments and thousands of pounds in interest.

Be prepared for a “NO”. They aren’t all going to play ball, but you don’t get what you don’t ask for. If you don’t ask for a reduction, you won’t get it. Call them all, talk to them. Be brave and take these leeches on. They are sucking the financial life blood out of you. They are literally living off you financially.

Time to remove the financial leeches and look after you.

Transfer

Are you able to get a 0% balance transfer or transfer to an existing card with a lower interest rate? You should think of this as a temporary measure and still make a plan for paying off the 0% debts. At some point the music will stop and you need to pay off the debts. So this is a temporary measure to give you some breathing space and massively reduce the interest you have to pay overall.

Consolidate

Could you get a cheap(er) personal loan? ​BEWARE commercial debt management companies. They are there to make money out of you.

Re-prioritise

If you were unable to change any of the interest rates, that’s ok! You did your best and that’s all you can ever ask of yourself.

If you did manage to change any of them, update your list with the new interest rates and now it’s time to re-prioritise.

Now the debts are no longer in order of interest rate. You need to reorder the list so that the highest interest rate debt is at the top and then as you go down they’re in descending order of interest rate.

If you’re using the debt attack calculator, put the updated interest rates in the table at the top and the calculator will work out the new order for you. Woo!

Step 4. Kick start: Sell stuff, use savings and rapidly reduce debts

There are some ways you might be able to raise some cash straight away. Can you sell any liabilities?

Examples of things you could sell…

  • holiday home
  • car that sits on the drive and is barely used
  • motorbike
  • pleasure boat
  • old boardgames in the cupboard
  • old mobile phones that have collected in the drawer

We’re not telling you that you have to give it up forever. Store it on gumtree/craigslist until you can afford it. What we mean by this is sell it on these platforms or something else like Facebook Marketplace, you can always buy back one very similar when you’re in a better financial position.

This has a double win because you’ll get the money from selling it AND if it was something that was costing you money to store or maintain each month you’ll stop paying for that each month.

  • Can you sell any belongings you don’t use? Are you using that treadmill you bought as a very expensive clothes horse? Sell the stuff you have in the house and the garage. In the UK you can use Ziffit or Amazon to sell second hand books and DVDs.
  • Do you have a storage unit full of forgotten belongings? Sell that stuff AND stop paying the storage fees
  • What savings do you have? Banks make money by lending at a higher rate than they’ll give you on your savings. KEEP EMERGENCY FUND of £1,000. (What is an emergency fund?). Use any other savings to pay off your debt.
  • What investments do you have? Consider selling them to pay off your expensive debt

We are always amazed at how many people have thousands of pounds of debt at a high interest rates (like 30% plus) and then £5,000 sat in a bank account earning 3% interest. You are literally funding the banks by doing this.

Keep the £1,000 emergency fund but use anything else you can to pay off the debt as quickly as possible.

Small caveat here. If you have any debts with a RIDICULOUS interest rate (above 40%), put all your funds towards the debt and don’t keep an emergency fund for now.

What do you do with the money you found?

Put any extra money you discovered towards the debts in the order in your table. That means… put the extra money towards the highest interest rate debt first. If it wipes out the first debt, great! Then move onto the debt with the next highest interest rate and see how much you have left to go towards that one.

Important! Make sure you take the action and use the extra money to pay off the debts. Just working out which debts to pay off first clearly doesn’t change anything in the real world. The theory is great AND we need to take practical action!

Using the debt attack calculator? You’ll put the amount you can put towards kick starting your debt in the first of the boxes in the green section…

Through our work at Rebel Finance School, we meet people in all sorts of different financial situations. Three of them were in these situations below. Have a look at the pictures and tell us… which one of the options would you choose?

Do you have savings?

If you had £10k in savings earning 4% interest and you had £5k in credit card debt at 19% interest what would you do? Some of you might be thinking “is this even a choice Donegans?” Well this is a real life situation from the debt case studies! If it was us we would cash in some of our savings and pay off the credit card debt straight away getting a better return of 15%!

Do you have investments?

You have built up £14k in index fund investments. These generally return somewhere around 10% a year but there is a risk that they won’t do that every year. Then you also have £10k credit card debt at 25% interest. What would you do? Seems crazy to us. In this situation, you are borrowing at 25% interest on a credit card to get a possible 10% return in the market! Sell the index funds and pay off the debt!

Borrowing to invest

This one comes from a question we were asked on Rebel Finance School. She asked “should I refinance my primary residence to get the money to buy an investment property”. Alan’s first question was “what’s the potential returns on the investment property?” The lady said “3-4% and the mortgage on my home is 6-7%”. So you are going to refinance your house, borrow money, go into more debt at 6-7% interest rates to buy something that is returning 3-4%? Would you do that?

Step 5. Gap gains: Widen your gap to increase monthly repayments

Time to trim the fat!

​You need to prioritise paying off your debt and stop going on expensive holidays, stop eating out, stop getting takeaways and stop buying the latest iPhone. Stop investing in the stock market (for now), until you’ve paid off your expensive debt.

If you’re doing this, you are essentially borrowing money to invest in the stock market and this is NEVER a good idea. Slight caveat to this… if you get matched pension contributions from your employer, continue contributing up to the matched contribution but don’t overcontribute. This way you get free money from your employer! Woo!

How much a month can you put towards paying off the debt? How might you reduce your spending elsewhere or increase your income? Widen the gap between income and expenses as much as you can!

How to increase income

Here’s some ideas to get you going:

  • Read Alan’s 10 ways to increase your income article and pick one idea to implement
  • How might you change your living situation to increase your gap? e.g. Get a room mate/lodger. In the UK the rent a room scheme allows you to earn £7,500 a year (£625 a month) TAX FREE by renting out part of the home you live in
  • ​Start a side hustle. Check out Alan’s Rebel Entrepreneur podcast which is all about how to start a business without going into debt. Start with the episode 5 ways to start a business with no debt
  • Use the gig economy (Deliveroo, Uber, Flex etc.)
  • If you have a partner, first of all tell them about the debt. Secondly, they might be willing to help and put some of their income towards the debt.​

We recorded a full workshop on how to earn more money… Check it out:

How to reduce spending

We’ve got some ideas for you to reduce spending…. some are more extreme than others! Pick the one(s) that work for you.

Remember this is a menu of ideas and you don’t have to do them all. The further you can reduce your spending the quicker you can get out of debt.

You may have already done a lot of these and that is ok too. Go back and look at increasing income if you can’t reduce spending. There is no ceiling to how much you can earn, but there is a floor to how much you can reduce your spending!

  • Spending by category. Go through your spending category by category. Where can you reduce spending? Don’t know how to track spending? Check out our ideas here and we even have a free spending tracker template you can use.
  • Streaming platforms. You can only watch one at once! Cycle through them rather than having them all at the same time. e.g. have Netflix for a month or two to watch the shows on there, then switch to Amazon Prime and so on. Or share with friends. You don’t need them all.
  • Transport. Could you downsize your car? Have you optimised your car to spend less? Do you even need a car? Multiple cars? Check the insurance price using a price comparison tool. Could you swap the car for a push bike for a year to get out of debt?
  • Utilities. Compare to the average in your area. Use comparison sites to check you have the best deal.
  • Insulate your home. In some areas/countries there are government schemes to help you do this. Check if there’s one in your area
  • Remove accommodation costs. Don’t have any kids or dependents? Ready to go extreme with your living situation? Check out Property Guardians in the UK
  • Food shopping
    • You *think* you’re an Aldi shopper and just get a few bits and bobs in Waitrose but are you really? Track it for a month and find out.
    • Make a list before you go to the supermarket and only buy what’s on the list
  • Other spending
    • What subscriptions could you cancel and put towards the debt instead. We coached someone who had an £18.99 gym subscription they weren’t using. When they put that towards their credit card debt it saved them £514 in interest and they were out of debt 10 months quicker.
    • Stop expensive hobbies (at least for now). Be creative with ways to have fun for free or for much cheaper
    • Make gifts for other people instead of buying them until you are out of debt

We made a full workshop for you all about how to live large on a small budget, presented by the fabulous Laura Poole! Have a watch and leave a comment on the video to let us know what you think of the video!

The whole purpose of this step of the strategy is to do what is needed to create a gap between your income and spending. If there is no gap, i.e. you are spending everything you earn every month, then you will never pay that debt off. Not only will you never pay if off but it will be compounding against you.

​We met one family on Rebel Finance School that were making minimum payments on their debt but the interest rates were so high that they would have never paid it off. We need to get you free of this debt.

What do you do with this bigger gap? Read on to the next step to find out!

Using the debt attack calculator? You’ll put the total size of your gap in the second of the boxes in the green section…

Step 6. Focus: Attack first debt. Minimum payments on others

This is where the gap you widened in Step 5 comes into play.​

Your job here is to attack the first debt on your list with the full power of your gap and set all other debts to the minimum .payments

The key is to attack the debt with the highest interest rate with all your resources. Tackle that sucker!

Apply all of your financial resources and focus to destroying the debt with the highest interest rate. Some debt strategies talk about tackling the debt with the smallest balance first but this is mathematically not the best way to tackle debt.

The balance doesn’t matter, what matters is the interest rate. Tackle the one with the highest interest rate first! Leave the rest to the minimum payments.

Step 7. Maintain intensity: Never reduce overall payments

When you pay off a debt, roll whatever you were putting towards that payment into the next one on the list. Never lower the total amount you’re putting towards your debt. Keep rolling each one you pay off into the next one. This builds momentum and helps you tackle the debts quicker and quicker.

Always do this in order of interest rates. So you pay off the debt with the highest interest rate first. All the ones below it have until this point been set to minimum payments. Now it is time to roll what you were paying to get rid of the highest one into paying the second highest interest rate one. Leave all other debts at the minimum payments.

You do this in order as you go down the list. It is a simple strategy but it is mathematically the most efficient way to pay off your debt.

Keep going until you are (expensive) debt free!

The spreadsheet version of the debt attack calculator gives you a full payment plan for you to follow

What do you do when you’ve finished paying off all your debts?

Firstly, celebrate your freedom! Maybe have a picnic or do a little jig in the kitchen. Freedom has never tasted so good!

Maybe post it in the Rebel Finance School Facebook Group and tell us all about how it is going and what you are up to! Progress should be celebrated.

There is no shame in having got into debt in the past. These things happen. All we want to do is help you tackle this at the moment and get free now.

Secondly, and super importantly, you need a plan so that this never happen again! Read on my friend…

Step 8. Future-proof: Stop debt relapse through education and planning

After you’ve worked so hard (and smart!) to get out of debt, it’s so important that you don’t relapse! How are you going to make sure this doesn’t happen again?!

The system is out to get you. There are teams of highly educated people out there whose job it is to persuade you to go into debt. They spend all day every day telling you that you deserve it for working so hard or that you only live once so put it on the credit card.

Don’t fall for this advertising. You don’t deserve debt. And you do only live once so don’t spend it in debt, in servitude to big financial companies working to pay off your loans.

Here are some ideas for how you could stop this ever happening again:

Store Cards. These things are evil! GET RID OF THEM. Cut them up. Ceremonially burn them on a fire in the garden and chant the word “Freedom! Freedom! Freedom!” as they burn. Have fun.

Credit cards. Do you trust yourself with credit cards… if not, cut them up!

Emergency fund. Make sure you have an emergency fund. Read all about emergency funds

Liabilities. Sell any big liabilities you have. Swap out that big car for a smaller car. Sell off things that cost you money monthly and reduce your outgoings.

Change your spending strategy. This is so important. If you are a big spender on Amazon, change your strategy. You are no longer allowed to purchase on the same day you have the idea. For example you see something you want on Amazon. You add it to your cart. Now wait a week and see if you still want it. If you still want it in a week’s time then buy it. If not then kick it back out of your cart.

Monthly finance meeting. This is a critical part of good money management. Being on top of where your money is going and whether you are going in the right direction with your finances or not! Read about monthly finance meetings.

You made it!

Congrats, you know the Debt Attack Strategy!

Now it’s time to implement and to follow the steps. You can use our debt attack calculator if you like. We designed it for you to guide you through the steps and to see the true impact of the Debt Attack Strategy vs just making minimum payments.

Let’s face it, putting this into practice will take effort and some hard work. Most things that are worthwhile achieving in life do! I promise you it’s 100% worth it. It might seem like an insurmountable task but following these steps gives you clear action you can take to change your financial future. We know that you can achieve it, we’ve seen countless people do it.

We would love to know how you get on, please tell us what happens and how we can support you more!

Katie and Alan xx

Disclaimer

We are not financial advisors. This is NOT financial advice. Read our full disclaimer