clear debt

Clear Debt Fast


clear debtIt’s never too early to clear your debts

There are a lot of people that need help clearing debts, and they need to get out of debt fast. While there are obviously a myriad of clear debt solutions, there is always the best way to clear debt. In this section, we will walk you through the process to get you debt clear via debt elimination steps.

Until you get full control of your finances and channel all your income into wealth building, you are not likely to build and keep your wealth. That is why clearing up your debts is the most important step right after your emergency fund building. Debts are the number one factor that slows down your wealth building process.

Imagine swimming in a pool of clear water vs. swimming in a pool full of mud. With the same amount of energy, you are guaranteed to move much faster in clear water than in the mud, if you will move forward at all.

The same principle applies to wealth building. Debts are just like mud. The interests you pay to your debtors, when compounded, slow you down and drown you in your wealth building journey.

That is the reason why so many people cannot break out of the vicious cycle of debts. They are channeling their resources into clearing up debts, but without a systematic method, the debts just seem to pile up and snowball along the way.

The bottom line is, it is easy to become wealthy if you don’t have any debts to pay off. Imagine not having to pay your students loans, car loans, medical debts, and even your mortgage eventually. All your income can be channeled into wealth building instruments, which is where your money should really be. Not in debt interests.

Identify the Enemy


A typical American with $50,000 annual income would have the following monthly payments to make:

  • $850 house payment
  • $495 car payment
  • $165 student loan payment
  • $450 credit card debt payment
  • $120 miscellaneous debts (personal loans, furniture, gadgets)

Total: $2,080 per month just in debts payment.

Now, imagine if we are to channel this amount instead to a low-cost index fund yielding an average of 8% a year (average annualized return of index fund from history), we will have $500,000 in just 13 years, and $1,000,000 in 18 years. That’s a million dollars in 18 years time. It may not sound impressive to some of you, but let’s carry on.

This $1,000,000 will grow into $1,500,000 in another 4 years time, and $2,000,000 in another 3 years time, and $2,500,000 in yet another 2.5 years time. As you can see, the time to grow your investment decreases exponentially as your investment gets bigger, such is the power of compounding.


Investment ValueYears Needed

Power of compounding — Time required to grow your investment decreases exponentially as your investment grows larger


We will talk more about this in Step 6, the final step that will eventually lead to your financial freedom — a self-sufficient system that provides you income indefinitely, freeing you from the shackles of rat race.

Why Don’t I Start Investing Right Away?


At this point you would probably be thinking — if the power of compounding is that great, shouldn’t we get to investing right away? Wrong. You see, as much as the power of compounding can do wonders for you, it can work against you in even more horrendous ways. Read on.

Did you know that the average credit card annual interest rate (APR) is 18%? According to CARD act, companies can raise your APR up to 29.99% if you are 30 days late on your payment. Let’s work out the math:

Suppose you have a credit card debt of $10,000, and you make minimum payments every month without fail. We assume further that your credit card APR is 18% (average rate) and the minimum payment is $300 per month, you will take a staggering 245 months to pay off your debt, if you don’t pile up new debts. That’s 10 years time of paying debt!

But you may ask — if I pay $300 per month, which equals to $2600 a year, I would imagine clearing up the debt in just 4 years time. But in fact, in that 10 years time, you would have paid $9,698.17 in interest. That’s the power of compounding working against you. Even if you are clearing your debt bit by bit, a big chunk of your monthly payment goes to the compounding interest.

Effectively, you are paying $19,698.17 for using $10,000.00.

I hope by now you have realized the importance of paying off your debts as quickly as you can. By paying off credit card debts, you are essentially investing your money at 18% annualized return. There is simply no better way to invest your money than to clear your consumer debts first.

Clear Debt Fast, Including Big Debts


There are actually shortcuts to clear your card debts much faster, even if you do not have additional monthly income. It’s called debt consolidation. Basically you borrow a loan at a lower interest rate (APR) than your current credit card APR, and use the borrowed amount to clear debt directly. Then you focus on paying off just one personal loan at a low interest rate. Essentially, you get lower interest loans to clear debt.

The APR of your personal loan depends a lot on your credit score, just like your credit card APR. Your credit score is a 3-digits number derived from your credit report and is one factor used by lenders to judge your creditworthiness for a loan or a credit card. The higher the score, the better rate you will get.

If you don’t know what your credit score is, you can get it for free from creditsesame.

Just sign up for a new account and you should be entitled to claim your free credit score. It is always good to know your most current score as all your loan rates will inevitably be determined through your credit score.

Once you have obtained your score, you are ready to request a quote for a personal loan.

You can get good personal loan with fixed interest rate for as low as 6% APR here, depending on your score. After application, you will be given a chance to review the APR of your new loan.

Do compare the APR rate offered to you versus the rate of your current debt, and only take up the loan if the new APR is lower than your current APR.

When you receive the new loan, DO NOT spend it on anything other than your debt. If you have extra money left after clearing your debts, save it up and use it to pay towards your first loan repayment. We have to exercise some self control if we want to achieve financial greatness.

A debt consolidation loan is something you should consider only if you are carrying a balance on your credit cards. If you do not carry any debt, or if your debt is at a very low interest rate, there is simply NO reason to consolidate your debt into a loan.

However, if you are carrying credit card balances at high interest rates, then it makes sense to consolidate as much of your credit card debt as possible into a personal loan. Using this strategy, you can free yourself from the high interest rates, and at the same time reduce your monthly payments to just a single payment on the one personal loan.

Let’s assume we are to consolidate a total of $15,000 credit card debts with 18% APR into a personal loan with 10% APR paid over 3 years:


 Current New Loan
Total paid$21,000$17,424.36
Total debts$15,000$15,000
Effective APR18%10%
Monthly payment$500.00$484.01
Years to pay off3.53

Pay off your debts much quicker by consolidating your debts into a single, lower interest loan


By consolidating the debts at a lower APR, we save $3575.64 and pay off the debt in just 3 years time with a comparable contribution every month.

This strategy works very well if you have a large consumer debt, generally $3,000 and above. But if your debt is small, you might want to save the hassles and use the method below instead.

Working with Small Debts


List all your debts in order, with the smallest amount or balance first. For now, don’t be concerned with interest rates or terms unless two of your debts have similar balance, then you list the debt with the higher interest rate first.

After you list your debts from the smallest to the the largest, pay the minimum amount to stay current on all the debts except for the smallest one. You want to attack the smallest debt with all you have until it is fully paid off, then cross it off.

Remember the monthly amount that you used to save up your emergency fund? After getting your initial $1,000 saved up, you channel the amount into paying off your debts diligently. Do not spend that amount on luxury items that are not essential. At this point of time your only focus is to pay off your debts. From the smallest to the largest.

You can list down your debts on a piece of paper and paste it on somewhere you can see everyday, like on your fridge. When you pay off a debt, strike it off and focus on the next one. Once you have seen it work, you will keep doing it because you will be fired up about the fact that it works.

If you are still with me up to this point, you are already making great strides in your personal finance. In fact, once you realize that you should be paying off your debts before saving up and investing, you are already on your way to financial freedom. Make sure you complete the to-do list below!

To-do List

  1. List all your debts
  2. Obtain your credit score
  3. Consolidate your debts if it’s >$3,000
  4. Pay off from smallest to biggest if it’s <$3,000


This article is one of 6-step series “Achieve financial freedom in 5 years time“.

previous: step 2 – establish emergency fund
next: step 4 – create extra income


Start Emergency Fund


Create Multiple Income Streams


  1. Mario

    This is a great article anyone in high school going into college should read this article . if i had this i would not have been in such a mess when i got out of college . i got married young and bought a house young so credit card debit auto loans and mortgage added up really quick . thanks for the helpful tips and keep educating

  2. Veronica Jackson

    Great post!! My debt is less than $3000 and I have been trying to payoff the highest account first. I am going to just payoff the smaller ones and go from there. I was thinking about refinancing my car but the term would be extended and the interest rate is not that big of a difference. So, I decided to just pay more on my monthly payment.

    • Edward

      If you can afford the monthly car payment, it’s better to keep the shorter term and pay up the loan faster. Shorter term generally means you pay less in interest rates, too.

    • That’s really thkniing of the highest order

  3. Carol b

    This is awesome, while I usually shy away from looking at my debts I realized I need to sort it out. This will allow me to get started quicker at becoming more stable. When I wrote down all these subscriptions and things like rent and other bills I have, I realized half of them I don’t need. I could put my money to better use. Hopefully I can get back on track and be worry free again. Thank you.

    • Edward

      Glad my article helped. Remember to make it a habit when it comes to reviewing your subscriptions. You can do it bi-annually and cut down unnecessary spending this way.

  4. Shannon

    Wonderful article with simple and easy to follow guidelines and priorities. I used to have an enormous amount of credit card debt. I didn’t like it, but it seemed the normal thing to do. A man I worked tole me that he paid 0 iinterest. I asked how he hot a card like that, and he told me he only charges what he can pay off that month, and then he pays the bill I full when he gets it…. no interest! Sounded great, but like pie in the sky to me. Fast forward several years, and post-divorce, I now manage my own money. I don’t create large credit debt amounts to carry. I usually only spend smaller amounts that can be paid off quickly, or might splurge more if it’s close to tax refund time. I have more trouble in keeping myself from using it for my children’s expenses, even though one of them is 25, with two children of her own.
    My goal is to reduce expenses, save money, invest through programs at work, and retire early enough to enjoy decent health and my loving and wonderful husband.
    Getting out of the unending debt of credit cards if very freeing, and that alone will lift worry from you, and replace it with peace.

    • Edward

      Hi Shannon, definitely. Many credit cards charge a very high percentage for interest, and without knowing it much of our month payments actually don’t go towards paying off the debt.

      Kudos to you for getting out of credit card debts, it’s definitely not easy, but being worry free is definitely worth it.

  5. Sangeeta

    Nice post it is. It must going to help many of us as most of us are on some debts. I like the way you compare debts with mud in a pool. Even I feel to get rid of these debts as early as possible. It is directly proportional to financial liberty with no restrictions.
    And the plans you have discussed here are worth reading and following. i will definitely check with my husband and forward him the link of the page.

  6. Jean

    Oh debt, the pain of my existence. It is actually the reason why I am trying to supplement my income online because I want the extra money to help catch up on debt. With a full time job I can keep up with bills and my minimum payments but you know nothing quite compares for that 40k worth of student loan debts *cough cough*. Not to mention the other stuff.

    The worst part about debt is general is that once it starts it really feels like you are in it forever. And it can take a lot of discipline to use your extra finances towards paying off your debt instead of buying other items – total lack of self control.

    I actually have a big plan for this year and that is to have all my credit cards paid down and at least half of my student loan. This means I really need to get going on my extracurricular monetary excursions lol and work much better on budgeting my money. Even eating out one less time a week would start to make some serious dents in my debt over time.

    Great article, though nothing changes the fact that for whatever reason it is so hard to behave when it comes to money. It is like eating healthy and exercising…you know you should do it but it’s SO HARD!!!!

    *cross my fingers* Hopefully this works. Thanks for the tips.

    • Edward

      I can see you have a strong will to get out of debts. When there’s a will, there’s a way. Student loans is definitely one of the big item to cross off, so see if there’s a way to consolidate them into lower interest loans.

  7. Brian

    I tell you, debt just stinks! I’m slowly getting out of it as I now have low credit card debt and will be done with paying my student loans in about another 5 months. It does feel good though when you pay off a loan which is what I did with a car loan 2 years ago. I just have a couple of personal loans I need to pay off along with just a little bit of credit card debt.

    • Edward

      Consolidate your personal loans if you manage to find a lower interest rate. It’ll speed up the process.

  8. John Rico

    Thanks for this information. I really wanted to get out of debt as soon as I can. Do you know the feeling of not getting enough sleep every night because of thinking of this debts. It is very depressing. By the way, what specific action do you suggest me to do? I am just earning less than 1500$ per month and I can’t cope up with expenses.

    • Edward

      Do you have any unused items sitting around? If there are try to sell them off to get some quick cash. Put the cash towards clearing your debts. Also, see if there are any loans you can consolidate into lower interest rates. Start with the small debts to give yourself some motivation. It’s very important to keep you going.

  9. Alyssa

    Hi Edward,
    Debt is financially debilitating. We are out of debt except for our home. And in about a year, it will become a rental house, so I’m not too concerned about the mortgage holding us back. I had no idea that car payments cost so much! Yikes. My husband bought a truck so old its practically antique šŸ™‚ And we love that truck. We paid cash. It was a Craigslist special. Its not pretty, the paint is chipping and a side view mirror fell off, but we reattached it (yay, duct tape!). We drive that truck with pride! Its ours. We own it. The less debt people have, the closer they are to financial freedom and being able to do what they want with their time! Great article and I think its going to help a lot of people.

    • Edward

      Hey Alyssa, thanks for dropping by. Having a car by cash is ten times better than having to take out a hefty loan for an expensive new car.

      There’s certainly time for a nice car, but not until one can generate a matching cash flow. The best motto is always to live within your means. Upgrade your lifestyle only AFTER you have upgraded your income. You’re doing a good job!


  10. Louise

    Really interesting article and quite scary how much we can waste in interest, fantastic to see a way to make debt less stressful and easily manageable. I have quite a few friends who could do with this, is it available in the UK?
    Debts can creep up without you noticing and after reading this I think a lot of us could do with reevaluating our position. Really clear structure and helpful. Thanks

    • Edward

      The basic framework is the same, so yes, the method can be used everywhere.

      There will always be credit cards that offer lower interest rate, so take advantage of those and consolidate the existing debts with higher interest rates.

  11. Norstad

    Great article Edward, I can see that you are really good of ridding off with debt.

    As a businessman I learned that there are 2 kinds of debt, bad debt which you just discussed and good debt. The difference between them is how you used the debt that you have.

    I have quite lofty amount of debt today but I’m worried free because it’s a good debt. I have used it to start a business and invest some of them. The ROI is quite fantastic and I’m confident that it won’t turn into a bad debt.

    Great stuff. Keep it coming. šŸ™‚

    • Edward

      Hey Norstad, that’s good to hear! Debts taken with calculated risks can be good, as long as it provides positive cash flow into your account.

      The keyword though, is “calculated risk”. I’m sure you will do well since you are already seeing fantastic ROI. Keep up the good work!

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