The Secret to Getting Out of Debt

get rid of debtLet’s face it, we are a society that is buried in debt. The average US household has $15,191 in credit card debt and also owes $33,607 on outstanding student loans. Add in auto loans and other types of financing and it is easy to see the typical American family is burdened by over $70,000 of debt! And, of course, that figure is ignoring any mortgage debt.

We have become a debtor nation. That is probably not going to change anytime soon. Our culture, society, and even economy are driven by consumption. When consumption is a priority, people will continue to incur debt by spending more than they have.

Of course, incurring some types of debt can be beneficial or be used to leverage yourself into a better position. For example, taking out a reasonable amount of student loans to further your education can obviously pay off in a large way.

Here is the deal – no matter how or why you incurred the debt, in the end it is still debt! You have still got to make payments. You are still going to be charged interest and at possibly very high rates depending on the type of debt.

Digging your way out of debt can seem like an overwhelming task especially if you owe massive amounts. It is easy to keep putting the problem off or to simply ignore it by pretending it is not there. Continuing to accumulate debt will eventually catch up to you. If you are borrowing money, you are also living on borrowed time. How do I know? Well, my wife and I once had debt of over $140k and we paid it off in less than 3 years!

The Secret to Getting Out of Debt

I’m going to share with you the secret to how we did it – the secret to getting out of debt. The secret is:

Hate your debt with a passion. Despise it. Realize how it can and will destroy your life and your future. Dwell on how insidious the debt is. Internalize how it will be robbing you of ever reaching financial security or independence. Make the debt your prime enemy.

Now, that may seem cheesy or ridiculous. I guarantee you it is not. If you absolutely, vehemently loathe your debt you will find yourself willing to do what it takes – the sacrifices and the hard work – to eradicate it.

Reasons Why You Need to Hate Your Debt

If you currently find yourself merely feeling lackadaisical about your debt, let me give you a few reasons that should both scare and incite you:

  • Your Future is Screwed – You are destroying your future if you continue to carry your debt load going forward. Every day you fail to take action is wasted. The quality of your life will be severely compromised by the debt. Debt is a disease. It eats away at your financial health. Are you going to fight this disease or let it handcuff your future into a miserable existence?
  • Limited Financial Flexibility -
    • Credit: High debt balances will not, in and of itself, necessarily lower your credit score as long as you remain current on your payments. However, lots of debt spread out across numerous accounts increases your exposure to missed payments whether it be by absent minded mistakes or sudden inability to pay. If that happens, your credit score will suffer.
    • Debt-to-income ratio: The more debt you have, the worse your debt-to-income ratio will be. This ratio simply measures how much you earn compared to how much debt you have. In addition to your credit score, this ratio is used to evaluate your financial health. A skewed ratio indicates poor financial health which could cause repercussions.
    • Ability to deal with unexpected hardships: Life throws curve balls to everyone. If you are drowning in loans and extreme debt, you lose your ability to handle these unplanned for challenges. That is a rough way to go about life – not being able to quickly adapt as needed.
  • Spending Way More than Originally Thought – Getting a good deal or taking advantage of a sale is useless if you charge it and then let the interest build up. In the end, you’ll pay way more than the original price. Likewise, your education ends up being more costly the longer the loans are outstanding. You could literally end up paying thousands upon thousands of additional dollars over the long run. That is your money. Money being thrown away.
  • Time Value of Money – If you are making minimum payments or have loans in deferral, the power of compound interest is working against you. That is a colossal mistake. Capitalized interest means the interest accrued but not paid gets added to the principal portion of your loan. Thus, in essence, you end up paying interest on the interest! You are destined to be a pauper the rest of your life if you keep letting that happen.
  • Ruins Your Ability to Invest – Saving and investing sure is a difficult task when large portions of your funds are allotted for debt repayment. Most likely, you won’t be able to save or invest for the future until after you have conquered your ugly debt. You need to get that compound interest working in your favor – to have your money make more money.
  • Psychological Health - Having a debt burden hanging over your head is stressful. It’s depressing. It can wreak havoc on your mental and emotional well-being. The feeling of liberation you get when finally paying off the last of your debt is amazing. Trust me.
  • It is Embarrassing! – Yes, lots of others have significant debt too. It is still embarrassing though. The longer you carry that debt, the more it looks like you are incompetent at managing your finances. Either that or you come off as lazy and unmotivated to improve your lot.

So there you have it. What are you waiting for? Are you going to keep being a slave to debt? Because that is what you are right now. Get angry. Get mad. Froth at the mouth. Hate your debt with all your might and fight to unshackle yourself from the constraints.

Once you free yourself from the bonds of debt, then you can focus on how to get rich.

How do you feel about your debt? Is it something that just bothers you and nothing more? Do you think by developing a pure hatred for that debt you’d find yourself compelled to more urgent action to take charge of the situation? What makes you the angriest about your debt? Can you think of any more reasons to hate debt?

*Average Household debt figures are sourced from nerdwallet.

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26 Responses to The Secret to Getting Out of Debt

  1. Kay April 18, 2014 at 3:28 am #

    “You need to hate your debt.” I love this! You list plenty of reasons to hate your debt and I agree. Especially with regards to ruining the ability to invest. So true. Many people fail to realize just how much their debt is costing them in lost opportunity.

    • Mr. Utopia April 18, 2014 at 9:46 am #

      I truly do think that hating your debt is the real way to get out of debt unless you are content with minimum payments for the rest of your life which, as I mentioned, will eventually catch up with you. If despising the debt is not an underlying factor, then most likely you won’t be motivated to do much of anything about it.

  2. krantcents April 18, 2014 at 7:51 am #

    I avoided debt because the interest rates always steered me away. I stayed with mortgages and car loans at very low rates.
    krantcents recently posted…5 Steps to Financial LiteracyMy Profile

    • Mr. Utopia April 18, 2014 at 9:50 am #

      If you are going to take out loans, then shopping for the lowest interest rate is always the wise thing to do even if it takes extra time. Of course, just because you were a smart, savvy loan shopper doesn’t mean you still can’t hate that debt and do whatever you can to pay it off as fast as possible.

  3. DC @ Young Adult Money April 18, 2014 at 9:25 am #

    I think you go a bit too far with this post. It’s important to take an objective view and to not get emotional about finances (in my opinion, obviously others disagree). If you’re going to say the Time Value of Money is a reason to get out of debt, I can’t help but disagree because if you can get a higher return investing money versus paying it down, you actually benefit by only paying the minimum. If you have a low rate on a mortgage, for example, there is little to no reason to pay more than the minimum. Time Value of Money often will actually favor only paying the minimum on most debt (excluding high interest credit card debt).
    DC @ Young Adult Money recently posted…The Weekly Quick Hits RoundupMy Profile

    • Mr. Utopia April 18, 2014 at 10:25 am #

      Yes, in the pure literal sense, it is true that if you can get a higher return on an investment opportunity then you should pursue it instead of paying off debt. In reality, that is a difficult thing to pull off. First, if you do have a fair amount of outstanding debt, the minimum payments alone might preclude you from having enough available cash to invest. Thus, you would be better off allocating whatever money you can scrounge up to paying off the debt in order to allow more “breathing room” in your cash flow. However, more importantly, how many are sophisticated enough to identify and find a return that’s higher than the interest they are paying? Sure, you could throw your money into the stock market and over the very long term you might come out on top. But there’s no guarantee. The “risk free” interest rate is extremely low these days. I guarantee you are paying more in interest on your debt than the risk free rate. So, unless you have a brilliant financial mind or are highly educated/knowledgeable and can easily identify prime investing opportunities with little risk that will provide a greater return (in which case chances are you haven’t incurred high debt levels to being with) then investing is probably not the wisest course of action over focusing on paying off most of your debt first. In other words, for the “average American household”, paying off debt should be priority…and, to do so, hating your debt is a sure fire motivator.

      A couple of other points…notice how I didn’t call out mortgage debt specifically as being a bad thing or one of the reasons to hate your debt? Perhaps I should have made an explicit disclaimer, but mortgage debt isn’t quite in the same category as other forms of debt since you have a tangible asset that has the potential to appreciate in value. If you are going to hate your debt, your mortgage should fall into the lowest rung on the ladder. That doesn’t mean it isn’t wise to pay your mortgage off as soon as possible though if it is within possibility.

      Finally, count me among those that disagree with you on not being emotional about finances. Sure, we should be as objective and rational as possible and not make knee-jerk reactions or decisions. But we, as humans, are emotional beings. It’s folly to attempt to completely separate our finances from our emotions. And good luck doing so anyway. Who among us hasn’t gotten mad for wasting money or felt guilty about spending on extravagances we knew we did not need? Do you get happy when you get a huge bonus at work or get a raise? Anyone who can accomplish that separation of finances and emotion must be a robot! Thus, on that premise, hating your debt is a legitimate way to conquer it. It’s no different than hating how out-of-shape you might be and then using that passion to transform your body.

  4. The Thrifty Issue April 18, 2014 at 4:18 pm #

    Wow, $70k in debt is a scary thought. I’ve always avoided debt, but agree that hating your debt makes it so much easier to clear it.
    The Thrifty Issue recently posted…Free and frugal fun for kidsMy Profile

    • Mr. Utopia April 22, 2014 at 9:43 pm #

      Good job on avoiding debt as much as possible. Hopefully you’ll never have to employ the “secret” of hating any debt.

  5. debt debs April 18, 2014 at 7:20 pm #

    Good to know you paid off $140K in 3 years ~ well done!
    We are targeting to pay off more than twice that (around $295K) in about 6 years.
    I hate my debt. I try to remain rational but sufficiently emotional about it to stay the course.
    We are just over 2 years into our plan. Probably the most difficult time now. Not yet half way there and the end is a long way off.
    debt debs recently posted…7 things about Jim Flaherty and why do I care?My Profile

    • Mr. Utopia April 22, 2014 at 9:46 pm #

      You are taking the right approach in hating your debt but also trying to “remain rational but sufficiently emotional.” Keep on fighting the good fight. It may seem like the end is a long way off, but if you keep on plowing through and looking for any ways to possibly accelerate your plan, you’ll get there before you know it. The feeling will be unparalleled.

  6. Tie the Money Knot April 18, 2014 at 8:07 pm #

    I think you make some very good points here about debt. The average person is really too cavalier about debt, and many who have never dealt with financial hardship simply don’t understand how heavy the weight of debt can be.

    When in debt, you have to work for the person who you owe money. When out of debt, you can get ahead and more easily build the life you want. I’d rather work for my future than the person or entity that loans money!
    Tie the Money Knot recently posted…One Important Factor to Keep in Mind When Keeping Separate FinancesMy Profile

    • Mr. Utopia April 22, 2014 at 10:01 pm #

      Well said. The lack of understanding about how burdensome debt can be is a real problem. The knowledge deficit is a roadblock for many people. Once that understanding is in place, it does make it that much easier to truly hate your debt and then start doing something about it.

  7. Little House April 19, 2014 at 10:23 am #

    This is great advice! The more you hate it, the more you’re willing to take action and pay it down. I’d definitely say the next step is to draw up a plan, whether that’s the snowball method or paying off the smallest card first, seeing some progress is motivation to keep going!
    Little House recently posted…A Visit to Zion National ParkMy Profile

    • Mr. Utopia April 22, 2014 at 10:03 pm #

      Yes, good point. Hate does not automatically cure everything – a solid plan is needed. Seems as if both the “hate” and the “plan” are dependent on each other. Having one without the other will only get you so far.

  8. Jen @Sprout Wealth April 20, 2014 at 7:45 am #

    “Debtor nation”…I can’t help the disgust that I felt when I read those words because from where I am,even if I am able to pay off all of my personal debts (which I hope I am able to do before I become senile), my nation’s people will still be paying its debt up until the 5th generation from us.
    Jen @Sprout Wealth recently posted…You Can Make Money Quick! Here Are Some WaysMy Profile

    • Mr. Utopia April 22, 2014 at 10:11 pm #

      I’m not sure where you are from, but if you are referring to the US national debt, then a big yes – that is a huge problem. That’s a related but different topic though since that borrowing is done by the Federal government and not individuals collectively (even though we are all “owners” of the national debt). I would say do what you can to control your own finances and hate your debt to get out of it. That’s all you can really do to better your own finances and that of your children.

  9. Clarisse @ Savvy Scot April 20, 2014 at 2:41 pm #

    When we had some debts before it really made us totally sick! From living paycheck to paycheck and setting aside money for dept payments. For us that was totally a big lessons to learned and now we really do avoid debt as much as we can.
    Clarisse @ Savvy Scot recently posted…Carnival of retirement, Happy Easter!My Profile

    • Mr. Utopia April 22, 2014 at 10:13 pm #

      The debt only made you sick because you knew how detrimental it was. Letting yourself be sick from it isn’t necessarily a good thing since you don’t want your physical health to suffer, but it sure is yet another reason to fight as hard as you can to get rid of the debt as fast as possible. Glad to hear you are avoiding more debt going forward.

  10. Jon @ Money Smart Guides April 22, 2014 at 12:02 pm #

    I took on this mindset with my debt. Even though I was slowly paying it off and making progress – my net worth was less negative every month, I made it a point to focus on my investments. What I mean by this is that my investment accounts were still sitting at $0, not working for me, growing and earning more money. I was basically paying off my debt to get back to $0.

    I looked at what I could be doing with that $10K. Invested and earning 3% dividends, I would be earning $300 a year. It made me so mad that I busted my butt to get rid of my debt and start having my money work for me.
    Jon @ Money Smart Guides recently posted…Betterment ReviewMy Profile

    • Mr. Utopia April 22, 2014 at 10:21 pm #

      That is an interesting way to approach things. You did a good job of taking rational thought about how costly your debt was and used it to further your disdain. This is good example of putting the “secret” of getting out debt into action.

  11. EL @ Moneywatch101 April 23, 2014 at 6:01 am #

    I agree you have to hate debt. One secret in addition to hate, is telling the person in the mirror once I am out of debt, I will not go back into it. Many people pay off a car, then immediately go buy another car. It doesn’t make sense in my book. Great job paying off so much in such little time.
    EL @ Moneywatch101 recently posted…Rich Uncle EL Random Facts 4My Profile

    • Mr. Utopia April 27, 2014 at 5:08 pm #

      Good point. One would think there would be permanency in the lessons learned from being in debt and then hating/sacrificing to pay it off. Alas, that is not always the case. I would think the hate was not genuine or strong enough if that happened, but time does take away the sting of traumas like that.

  12. Peter H. April 30, 2014 at 6:46 am #

    I guess for people where debt has absolutely ruined or even immobilize their life, they have really no choice but to hate their debt, but I don’t think this is the case for most people. Most people in my immediately circle has somewhat of controlled, healthy debt and it’s hard to hate debt like that. Debt is a regular component for most Americans and you can really use it to your advantage if you are responsible and discipline.
    Peter H. recently posted…How Americans get into debt… haha, so true.My Profile

  13. Lim @ CreditsPoint May 8, 2014 at 11:05 am #

    I think it’s so easy to get complacent and be happy with being able to make payments without ever really wanting to change behaviors or amount of stuff you feel like you need. I decided I didn’t want to be 65 with a mountain of things left to pay off, but I think some people never get there.
    Lim @ CreditsPoint recently posted…3 Common Financial Mistakes Everyone MakesMy Profile

  14. Elizabeth @ Single Mom Debt May 22, 2014 at 10:50 am #

    Well, you just named me – solo – in that first paragraph. I like your secret. In fact, I experienced the hatred a couple month ago when I decided it doesn’t need to take me a life time to get out of debt. While I am in the throws of ‘how the heck am I going to accomplish it’, I am beginning on the right task. Tired of paying to lose good years on my life!
    Elizabeth @ Single Mom Debt recently posted…Get Out of Debt Update: -$60996.08My Profile

Trackbacks/Pingbacks

  1. Diamonds in the Rough Roundup 4/25/14 - The Broke Professional - April 25, 2014

    […] -The Secret to Getting Out of Debt by Personal Finance Utopia:  Great article on the various ways debt ruins your life.  Most people embrace debt and go on their merry way.  It really must be despised so you can take firm action against it. […]

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