This popular post about how we got out debt in 2008 is still highly relevant today.  Enjoy!

If you read the about me section, you might have come by an article that explained where we financially started upon graduation from University. To summarize, we were majorly in debt (but not as bad as these guys). To start, we had a large student loan along with a brand new car loan. Within 4 months of that, we closed on our first home/mortgage with no furniture along with an engagement ring in the works. So needless to say, there was a lot of money spent. The bad part was that it was with mostly borrowed money.

I don’t write a lot about debt as I personally believe in focusing on building wealth instead. However, dealing with debt is a big part of personal finance. We managed to pay off $50,000+ worth of student and consumer debt in 3.5 years after graduation all the while maintaining a principle residence, purchasing a rental property and getting married.  In fact, we could have had our debts paid off sooner if we didn’t build a large cash emergency fund.

How did we get out of debt?

Here are there guidelines:

  1. Be committed to reducing your debt. Focus and set your mind to creating wealth by reducing debt liabilities. This must be top priority before any discretionary spending or even retirement savings.
  2. Calculate and increase your cash flow. Track your income and expenses to figure out your cash flow. If your cash flow isn’t positive after all expenses including debt servicing, find ways to reduce expenses and/or increase income until you have a positive balance sheet. The higher your positive balance, the faster the debt will be paid off. For the most of us, saving money is easier than finding ways to make more money. We did both – we lived frugally and I got a second job.
  3. Extra money is used to pay for beer down debt. Any excess cash flow from your budget should be used to pay down debt including unexpected income ie. higher than normal tax returns etc.
  4. High interest debt is paid first. Debt should be paid off in this order of the highest interest rate -> lowest interest rate (after tax deduction if there is one). Minimum payments should be made on the lower interest rate loans, while pouring all excess cash flow on the highest rate loan.
  5. Keep it going. Once a loan is paid off, take the old loan payment money and dump it on the next highest interest rate loan. Repeat until all debt is paid off.

If you have consumer debt that you want to get rid of fast, then follow the steps above and you’ll be debt free much sooner than you may realize.

For those of you who have also defeated consumer debt, how did you do it?

If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).


  1. Think Money Debt Blog on August 4, 2008 at 7:42 am

    Just wondering why you chose to build an Emergency Fund while you still had debt to pay off? I know many people would choose to get rid of the debt asap & then build their savings.

    Care to elaborate?

  2. FrugalTrader on August 4, 2008 at 7:49 am

    Hey TMDB, thanks for stopping by. If I had my time back, I would have paid off the debt even earlier. However, I still have the preference to build assets than to reduce liabilities even though in the big picture they both do the same thing, increase wealth.

    Even today, I hold quite a large cash reserve in the case of a “bargain” real estate or other investment opportunity.

  3. DAvid on August 4, 2008 at 9:37 am

    I would also recommend converting high intrerst debt to lower interest debt, and keep paying it at the same rate. If you can transfer your credit card debt to a LOC, you can more quickly reduce your debt.


  4. FrugalTrader on August 4, 2008 at 9:50 am

    Good call DAvid. We didn’t have any obscene interest on our debt, so we didn’t make any transfers. But your advice is spot on for people carrying credit card debt.

  5. Dividend Growth Investor on August 4, 2008 at 11:47 am

    Thanks for the summary FT. Very few 20 something year olds have the discipline to get out of debt. The pop culture tells them that in order to “be cool” and be happy you have to spend a ton of money on the latest clothes and gadgets, while charging it on your Visa/mastercard. It’s fun :-)
    Why should I go through all the hassle of figuring my expenses when I can simply open a new credit card and live like a king?:-)

  6. canabiz on August 4, 2008 at 11:53 am

    I am sure a lot of financial-savvy folks like you guys already know but in case you guys are not aware: MBNA and CitiBank currently offer 0% balance transfer for a minimum of 12 months. Certain conditions and restrictions apply, as always, but it’s a neat way to get rid of those high interest loans and to get your finances in order, so to speak.

    There are various threads discussing these *deals* on RFD, I am sure you guys can find the information in no time.

    I am also not big on spending large sums of money to earn rewards. The points are something I consider *nice-to-have* but they are not nice anymore when you fall behind on the payments and incur interest as a result. I guess the banks don’t throw us the bones for nothing, they are in the business of making money and at the end of the day, it is ultimately our responsibilities to look after ourselves.

  7. MoneyGrubbingLawyer on August 4, 2008 at 4:04 pm

    Another great post, FT. I tend to focus, as you do, on accumulating wealth rather than eliminating debt, but your tips are certainly helpful.

    My biggest strategy for paying down debt has been regular, automatic payments against my debt. Much like the “pay yourself first” strategy of having a certain percentage of your pay automatically put into savings, I have automatic payments that go on my debt every payday, in addition to the required monthly payments. The amount I pay is based on my budget and reduces the temptation to take it and spend it elsewhere. This approach has allowed me to make great progress in paying down a huge student debt.

  8. The Financial Blogger on August 4, 2008 at 6:25 pm

    I think that your focus on your goal is the best way to achieve it.
    In order to get rid of our debt faster, I got a second job and that extra income was going exclusively on our debts along with our regular payments.

    Having a second job was good for two things:
    #1 using extra cash flow to pay down our debts faster by applying extra capital payments
    #2 Since I was busy working more, I had less time and less energy to spend my money :-) This is a great way to save money :-D

  9. Raymond Caxton on August 5, 2008 at 4:49 am

    The crucial part of paying off your debt is making a plan. Once we make a plan for getting out of debt, we can start doing what it takes to live our life debt-free.

  10. Cannon_fodder on August 5, 2008 at 2:01 pm

    Why aren’t these things taught, nay drilled into, teenagers? Which ultimately will benefit them more – reviewing Shakespeare’s Romeo and Juliet or money management?

  11. Gates VP on August 5, 2008 at 6:41 pm

    TMDB: Just wondering why you chose to build an Emergency Fund while you still had debt to pay off?

    I think this really ventures in to the oft-unexplored reason of “financial reality” vs. “financial idealism”.

    It’s like the “snowball method” of debt repayment (where smallest debts are paid off first). Numerically, it does not make sense to pay off anything but the highest interest rate debt. However, humans are not governed solely by numerical reason. The psychological effects of paying off any debt (even the smallest) can actually increase the chance of future payments happening.

    In the case of FT’s Emergency Fund it makes little sense “in the abstract” to save money while debt is owed. (Of course it’s done all of the time with great reasons: mortgages, car loans, student loans, business loans, items that are leased, etc.) But in reality, maintaining a cash balance is important.

    Life doesn’t always take credit.

    In the ideal, you should be able to throw every extra penny at “the debt”, but in reality we know this simply doesn’t work. You have to float money in the account to cover bank fees, you forgot about to plan for the car insurance and they don’t take credit, you have a medical emergency (here in the US) and they only take cash, your house is broken into and you need to pay the deductible in cash, your boss’s pay-check bounces (yes I’ve seen it happen). Most rental places won’t let you pay the rent with anything other than “cash or equivalent”. (yeah, some people have those “Mastercard checks”, but that kind of defeats the purpose)

    I knew one lady going through credit repair and the “repair specialists” simply sucked up every dollar she had. She had to fight to keep a few “uncontrolled” dollars around. When her kid got sick and needed cough medicine (but had no budgeted case for it), it became apparent that you couldn’t cut it quite that close.

    And there’s something uncomfortable about sending out a Credit Card payment and then losing your job, only to realize that you won’t make next month’s rent (even if you find a job before then).

    So, yes, in theory, you should always pay off the debt first and ignore the “emergency fund” for the “actual emergency” of the debt. But in practice this simply doesn’t work.

  12. Nate on August 5, 2008 at 10:57 pm

    Hey FT,

    Just wondering what you think of schemes for paying off debt like the MBNA 0% credit cards that are often discussed over at Redflagdeals? I was considering transferring my student loans to an MBNA card, but I’m having trouble convincing the Mrs. She’s not a big fan of loading up a creditcard.

  13. FrugalTrader on August 6, 2008 at 12:09 am

    Hi Nate, I think the idea is fine providing that you can pay the CC balance in full when the time comes in 12-15 months. Is that what you had in mind?

  14. Nate on August 6, 2008 at 1:12 am

    Yes, the plan is to pay it off before we pay interest. Unless we go for the 2.9% lifetime interest rate they are offering now. We would basically be consolidating in that case.

    The 2.9% deal information can be found here:

  15. gail on August 6, 2008 at 11:27 pm

    Hi FT,

    I’ve been following your site for awhile, and I have become quite appreciative of the information — it’s inspiring! The only debt I currently have is a mortgage (and a HELOC for the Smith Maneuver). But when my husband and I met, he had a bit of credit card debt, and thousands more in student loans.

    First, we threw money at the credit card debt, ASAP. He also bought a different car, instead of a gas-guzzling truck) which helped significantly. Then, we secured a home line of credit to include all of his student loans (property value had more than doubled at the time).

    Not really rocket science, but it was an extremely stress relieving thing for him, as there was no way to consolidate his loans previously. It was tiring to ensure each lender was paid their piddly amount (and frustrating knowing how little the debts were being paid down!). To make matters worse, he missed out on any student loan relief because every year he went to school, the government lending body changed making it appear to each one that his loans were not significant.

    As a student (university for 9 years!!) I found that also trying to time my shopping with my credit card rollover date was helpful. For example, I might wait a day to purchase groceries and the bill wouldn’t be due for perhaps another month versus the next week … when I knew I wouldn’t have the money. This helped to keep me from ever paying interest on the card. Timing is everything.

    The key is to be diligent about paying down debt, and to spend the time and energy learning what things really cost.

  16. Writer Dad on August 15, 2008 at 3:54 pm

    Getting rid of the debt is so important. If you don’t, it will swallow you like the hungry alligator it is.

  17. Novice on September 8, 2008 at 12:19 pm

    @ 10 Cannon_fodder

    RE: “Why aren’t these things taught, nay drilled into, teenagers? Which ultimately will benefit them more – reviewing Shakespeare’s Romeo and Juliet or money management?”

    While I understand the sentiment (but not why it has to be one or the other), some 400 years after he lived, Shakespeare will still benefit them more.

    Solid Financial and life advice from Hamlet:

    “Neither a borrower nor a lender be;
    For loan oft loses both itself and friend,
    And borrowing dulls the edge of husbandry.
    This above all: to thine own self be true,
    And it must follow, as the night the day,
    Thou canst not then be false to any man.”

  18. T.B on September 9, 2008 at 3:24 pm


    I am considering rolling all of my (and my wife’s) debt into my mortgage when it comes up for renewal. We have approximately $30K in credit card and LOC debt. Would you recommend this as a strategy for reducing debt?

    Don’t worry, we’ll be structuring ourselves so we don’t use our cards anymore for useless purchases…

  19. FrugalTrader on September 9, 2008 at 4:42 pm

    T.B, providing that your mortgage interest is lower than your credit card interest then it should be a good plan. That is provided that you follow your plan of getting rid of those cards.

  20. Cannon_fodder on September 10, 2008 at 6:32 am


    There is no chance of you convincing me that learning Shakespeare will actually benefit the average individual more than being educated about personal financial management.

    I have yet to see a study listing the top 10 reasons for relationship breakdown that listed lack of knowledge when it came to the Bard. Financial issues? Usually in the top 5.

    Nor, do I remember being asked to quote a sonnet during my mortgage application. My credit score? Absolutely. For my wife and I, because we are good at managing money, owning a house with borrowed money, has been a very good thing for us.

  21. Gates VP on September 10, 2008 at 1:23 pm

    I have yet to see a study listing the top 10 reasons for relationship breakdown that listed lack of knowledge when it came to the Bard.

    Of course, there may be some conflicting data here. In my experience, the ability to manage money shares many attributes with the ability to manage one’s health, relationships and careers. (Yes there are some exceptions).

    In the case of a relationship breakdown, money is often a prominent factor, but it’s typically just the most visible end result of the relationship damaging decisions. Spending money to cover unhappiness, shared delusions of an unaffordable lifestyle, financial “cheating”, these are all relationship issues that manifest themselves as money issues.

  22. Novice on September 10, 2008 at 4:05 pm

    Cannon Fodder – To understand Shakespeare is to understand the human condition – anger, jealousy, love, happiness, sorrow, grief and all that exists between heaven and earth. If you really understand your partner and yourself, then you will have a much higher likelihood of achieving a successful and balanced relationship.

    To build upon Gates well-put observations, I highly doubt that those youngsters who do get into ‘money problems’ do so because they do not understand how to calculate the APR they will pay; they spend poorly or make bad decisions because they do not understand who they are or why they are engaging in such harmful behavior.

    I would also surmise that anyone educated in Shakespeare will have a surprisingly strong interest in personal finance as well, given that so many of his characters are motivated by wealth – Iago, Richard III, Macbeth.

    I’m not suggesting that teaching personal finance isn’t a great idea (of course it is) but that there is value in learning both.

    As to the rest of your post – ie “Nor, do I remember being asked to quote a sonnet during my mortgage application” is true and a fair point, but the problem is that the same logic can be used to dismiss most of the high school experience. In my own mortgage application, I wasn’t asked to use the quadratic equation, list the Newtonian laws, speak Spanish, or run laps – so by your logic then algebra, physics, other languages, or physical education have no bearing or use in the real world either as long as you can own a home with borrowed money.

  23. DBennett on November 25, 2008 at 12:56 pm

    Last year this time I had about $3,000 in debt. Mostly on credit cards and paying for things like rent. Being a university student, with no student loan debt, entering my 3rd year (last year), 3k in debt wouldn’t be considered bad. However, I’m not a fan of it. Being a business student with paid work terms, I only made $12 an hour and worked another job about 6 hours a week. In the mean time, myself and my SO booked a trip to London and Paris that cost around $3k. Even with rent, bills, car payments, insurance, and tuition, I managed to pay off all of the debt last month. (My work term pays $12 an hour this time as well). In addition, I have enough money saved to pay for next semester’s tuition as well as having $6,000 in investments (that have dropped considerable recently I might add).

    The moral of the story here is that, if I, a university student, can pay off $6,000 and invest an additional $2,000 all while making less than $12.50 an hour, in a year, its possible to stretch your money further.

  24. Time to get serious on January 2, 2009 at 3:08 pm

    Hi, can anyone recommend “FREE” software or a spreadsheet to help start tracking expenses so I can get serious about my cash flow issues and focus on debt retirement – lots of great ideas here and I’m ready to commit!!!

  25. DAvid on January 2, 2009 at 4:38 pm

    There are lots of spreadsheet templates to track budgets and expenditures. Just do a web search for “personal finance templates” or “personal budget templates”. You might also wish to have a look at Abassis Software’s product.


  26. Baywen on January 9, 2009 at 5:57 pm

    Good afternoon. I am involved in the real estate industry in BC as an unlicensed marketer of various developments. As a startup I have utilized credit card(s) to get myslef going over the past year.

    As I have not been making income tax deductions throughout the year (yes it was foolish, I know), I will have that to deal with as well.

    I have split my income with my assistant so that both of us have earned roughly $50,000.

    Currently I have roughly $20,000 in debt and with roughly $70,000 of room for RRSP.

    My mortgage is roughly $210000 with a home value of $425,000.

    As I have $18,000 coming into my pocket over the next couple of days, I am looking for some options from readers as to how I should proceed. Pay off dedt, do Sm in some fashion, RRSP’s???

    I am completely ignorant of the financial aspect of things and my advisor is not a hands on type of guy and is going to be replaced.

    Looking for genuine input.


  27. Scott on January 10, 2009 at 12:23 pm

    Use $20,000 to PAY DEBT!

    Never question or second guess debt reduction — especially credit card debt!

    You have about 4 months to come up with your ’08 ‘tax-owed’ money. Even then, you may be able to pay that on installments, but still cheaper than a CC (assuming an average CC rate).

  28. Gates VP on January 30, 2009 at 1:10 am

    @Time to get serious

    The easy on-line option is Google Docs:

    If you don’t want the “on-line version” then check out Open Office, the freeware, open source competitor to MS Office:
    In particular you’ll want the Calc program which should look quite familiar (screenshot here).

  29. Novice on February 2, 2009 at 2:22 pm

    @ Time — my experience has been that the best way (for us, anyway) is simply a notebook and pen. For each month create 8 – 10 categories (ie house, investments, utilities, misc) and each day update the book with what you spend in each category, and at the end of the month see how you did versus the budget. We tried using excel sheets etc but it was just easier at the end of the day to write it in a book than to go downstairs and enter it in. Not the most high tech way to do it but it works, especially if you want to see the little things you buy in cash (ie subway tokens).

  30. Debt Consolidation Regina on April 27, 2009 at 12:46 pm

    Great article! Short yet informative on how to take the appropriate steps in order to manage your current debt and avoid it in the future.

  31. Toronto Bankruptcy Trustee on May 21, 2009 at 12:40 pm

    To the point, simple and concise. This article may detail some of the obvious solutions to debt but people often find it difficult to carry out these easy steps. It all starts with the will power as said in step 1.

  32. Jeremy on May 25, 2009 at 5:29 pm

    Google the “Pear Budget” spreadsheet if you’re looking to track monthly household expenses. (Make sure you download the free excel version, not the online version).

    Also a note about consolidating debt on in a mortgage:

    “Consolidating debts into your mortgage, or another secured loan is (again, in my personal option) an even worse idea. Secured debt means that if you default on payments you’ll lose your home. Not only that, but your mortgage will generally be on a much longer term, so although the interest rate may be less, in the long run you’ll be paying far more.

    For example, according to the figures you’ve just entered, you currently owe $30,000.00. If you consolidated that into your mortgage at, say 5.5% over 25 years, you’d end up paying $25,267.87 in interest. By snowballing correctly, you’d pay $4,247.00”


  33. debt advice on September 30, 2009 at 8:50 am

    Very informative article. Do you mind if we link back to this in the ‘other information’ section of our website?


  34. Toronto Bankruptcy on May 21, 2010 at 11:33 pm

    Good article, but the advice may be a bit too general. Perhaps more specifics on how to reduce expenses? Such as where to shop for groceries (No Frills instead of Metro) and how to get good deals on basic household expenses.

  35. bb on August 13, 2010 at 8:24 pm

    It all SOUNDS so easy,

  36. Velle on November 17, 2011 at 1:57 am

    My husband and I are two paycheques away from eliminating consumer debt. All we’ll owe is our mortgage which we hope to pay down fast. We were very disciplined and were able to pay off so much in so little time. A lot of hard work….extra work and sacrifice. We hate debt and plan to be smarter moving forward.

  37. Rob on September 9, 2012 at 8:41 pm

    I am a big fan of using extra cash, no matter how small to chip away at your debts. Whilst it might not seem worthwile, every little amount you pay down brings you closer to your goal.

    I also personally try to save as much as I can on my monthly expenses in order to have a little surplus to throw at my debts.

  38. Dan @ Our Big Fat Wallet on May 12, 2014 at 12:18 pm

    I’ve never actually had any consumer debt but I think the most important thing is for people to live below their means. Many people could avoid most of their debt if they simply learned to live with less. Making your own coffee at home, bringing a lunch to work and not getting a new SUV every 3-4 years are all simple habits that make a difference in the long run

  39. LK on May 13, 2014 at 9:04 pm

    My wife (my girlfriend at the time) finished her BScN with 20k$ in debt (including a 5k$ “loan” to her brother).

    By the end of her MSc, she managed to pay off all of it.

    All that by working part-time at the hospital (at about 25$/hour) and as a teaching/research assistant. We were even able to spend a few months in Europe (in the context of my own studies). The trick was to be mindful of day-to-day expenses; we cooked almost all of our meals, we did a lot of hiking and bicycling, we would go to museums at discount times, did not have cable, had very basic phone plans, no flat-screen TV, used open-source computer programs, often received guests rather than going out, only bought cloths when physically necessary (e.g. holes in running shoes), etc.

    Although this might seem a bit strict, it was in fact a very pleasant moment of our lives. We were in love (and still are!), full of energy and had a ton of great ideas to have fun on a budget. Also, the decrease in stress when paying of that debt was well worth not going out to dinner often.

    Oh, and tuition are low in Quebec (about 1500$ per semester including administrative fees). That helped a lot.

  40. A Frugal Family's Journey on May 14, 2014 at 12:02 pm

    Our family did most of the same things that you did…the only exception is we used the Dave Ramsey debt snowball method (paying the smallest debt first). I completely understand your reasoning for paying higher interest first and believe it also works in certain cases. The reason we believe and have personally found out why the debt snowball method is so effective, was because of the personal satisfaction you get from clearing a debt. Each time we cleared off one debt, it only motivated us to move onto the next. It felt like we gained momentum with each debt we paid off.

    The other thing we did that seemed to have helped is having a debt balance meter on our refrigerator to show our progress. We felt this was effective because it was a constant reminder to let us know how we are doing. As we got closer to being debt free, I think actually seeing how close we were made us push even harder towards the finish line.

  41. on May 14, 2014 at 12:08 pm

    I have massive student loan and credit card debts (~$65 000), and used all the credit card loans (at low interest rate) to invest in stocks and gained a lot, but I may not do that again if the market stays high. I am currently focusing to reduce the debts.

  42. Ed Rempel on May 14, 2014 at 11:17 pm

    Hi Time,

    The best free software for tracking your expenses is probably Mint. It allows you to download all your transactions for an accurate tracking. Check it out at Some people are hesitant with Mint because you give them your login for all your bank accounts and credit cards, but they are owned by Intuit, which owns Quicken and the tax software us professional tax preparers use.

    Tracking your expenses is only the first step. Once you find out how you spend your money, you need to look at it and decide where you think you should spend less (or more) money.Then you need to work out your long term goals and work them in.

    You are starting at the right place, though.


  43. Ed Rempel on May 14, 2014 at 11:49 pm

    Hi Baywen,

    Interesting situation. You don’t give enough info to make complete recommendations, but here are my thoughts:

    1. RRSPs are not really worth doing in the lowest tax bracket, which goes up to about $43,000. If your taxable income is $50,000 (It may vary from your gross income.), then only about $7,000 RRSP is worth doing for you.
    2. You have $20,000 debt, but don’t say what type or interest rate. If it is credit card debt at 19%, you should pay it off. If it is low interest debt, then you probably should focus on accumulating some wealth.
    3. If you have save nothing for tax and have no instalments or tax withholding, an income of $50,000 with $7,000 RRSP contributions would mean you pay tax and CPP together of $7-8,000. You could either keep that much cash to pay your tax or roll this into your mortgage, as well.
    4. You have equity in your home and should be able to roll your debt into your mortgage to refinance it at a low rate. We are recommending 2.59% in a 2-year fixed today, which is probably much lower than your current debt rate.
    5. You probably need to start building wealth. You have about $110,000 available equity in your home that you could invest as part of the Smith Manoeuvre. This is based on 80% of your home value, less your mortgage and $20K debt. However, you are relatively new to investing. The Smith Manoeuvre is borrowing to invest, which is an aggressive strategy and probably too risky for you right now. You need to be confident in your investments or working with an advisor that you are confident in. Otherwise, you will be tempted to sell your Smith Manoeuvre investments the first time they are down, which would make it a bad strategy in your case.
    6. You have $18,000 and should probably invest roughly $7,000 into your RRSP. You could save $7-8,000 for tax, or put that into your mortgage. Your best bet is probably to start building wealth by investing. Once you have contributed the optimal RRSP amount and if the Smith Manoeuvre is too risky for you, then the 3rd best strategy in your case is TFSA. You could invest $11,000 in your TFSA, or invest the maximum TFSA by increasing your mortgage.
    7. You might want to get a job where you can help people make a difference in their lives. If you are unlicensed and selling real estate investments, how do you know you are recommending something that is a good idea? Don’t do a job to make money. Do a job where you are helping people and money will eventually come your way.

    I hope that is helpful for you, Baywen.


  44. Barry @ Moneywehave on May 15, 2014 at 1:29 pm

    Often I look back at where I started on my money journey and I’m happy to report that I’ve been doing alright.

    One thing I will admit though is that living in Toronto, no matter how much money I save it seems like home ownership is just out of reach.

    I still use a budget to this day since it keeps me honest. Could I save more money? Probably but I think I’ve found a happy medium between saving and enjoying life.

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