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Want to Get Out of Debt? Start by Asking Yourself These 7 Questions

By: David Bach  |  Last Updated: February 22, 2021
Financial Expert & 10x New York Times Bestseller
IN THIS ARTICLE1. Why do you want to be debt free for life?
2. Why are you in debt?
3. How much debt do you have?
4. How much interest are you paying?
5. Who can help you get out of debt?
6. What’s the worst thing that could happen if you don’t get out of debt?
7. When will you start?

If you’re in debt, you’re not alone. Almost half of Americans, 47%, currently carry credit card debt, according to a May 2020 report from CreditCards.com. And 23% of U.S. adults with credit card debt have added to it during the COVID-19 pandemic.

Whether you’re in credit card debt, or have student or auto loans, the first step to getting out of debt is facing it. The good news is, you’re already taking action by reading this article. 

Below, I’m going to ask you seven simple questions that will force you to come to terms with your debt. Keep in mind that there are no right answers — only honest answers. 

By the way, if you’re married or in a committed long-term relationship where you share finances, you should go through these questions with your partner. Don’t assume that just because you love each other you share the same views on spending and debt. That’s not always the case, so make sure you’re on the same page.

1. Why do you want to be debt free for life?

Take some time with this question. Maybe you want to get out of the red because your debt is causing you stress and anxiety. Maybe you want to have a family one day and don’t want to have to worry about providing for them. Or maybe you already have a family and want to be able to leave something for them when you pass.

Your answer should be honest and meaningful. It should also excite you.  Think about what your life would look like without debt, and most importantly how you would feel. Having this conversation with yourself and your loved ones can help you go from being fearful to being hopeful.

2. Why are you in debt?

This question isn’t meant to make you feel guilty or bad about your past decisions. I want you to face the truth about how you got to where you are today. 

Did you lose your job recently? Is your business down because of Covid-19 and today’s challenging times? Was it a medical bill? Did you buy a bigger house than you could afford? Did you live beyond your means? What really happened?

3. How much debt do you have?

You can’t get out of debt without knowing where you’re starting from.

Start by figuring out how many credit cards you have and how much debt you carry on each card. To do that, you’ll have to go through your statements.

Then, I want you to create a folder for each credit card and label it appropriately (e.g. “Visa Credit Card”). On the front of each folder, write the total amount of debt you currently owe on that particular card (make the numbers big and bold!) and today’s date. Every time you make a payment that reduces this credit card debt, you’ll cross out the old total and, below it, write down the new, smaller total you owe and the date. This way, you’ll always know exactly how much you owe and who you owe it to. 

Just seeing a record, in your own handwriting, of the progress you’re making each month is really going to motivate you. Trust me. (If you prefer to make digital files rather than handwritten ones, that’s fine — as long as you don’t forget to track and monitor your progress.)

Once you’ve filed all your credit card statements and added up your total balances, it’s time to add up all the other debt you have: mortgages, car loans, student loans, personal loans, etc. As you did before, create a folder for each debt, label it and, on the front of each folder, write the total amount you currently owe. 

Now that all of your files are created, you can add them all up and have a grand total of everything you owe.

4. How much interest are you paying?

This may be the most eye-opening question you’ll answer. Pull out the most recent statements for every loan you have and find out how much of your monthly payment goes to interest charges. You may be surprised with how much of your money gets eaten up by interest. 

If you can’t find the interest rate you’re currently paying (look for the “annual percentage rate” or “APR” at the bottom of your most recent credit card statement), call the company and ask them exactly how much your debt is costing you. Tell them you want to know the effective rate, not the rate above prime. They will understand the question and, by law, have to answer truthfully.

Then, ask your credit card company for a lower rate. (Do this with all the credit card accounts you have.) Before you negotiate, I suggest looking up the national average for credit card rates (it’s 16.12%, as of February 2021) and asking for lower than that. 

If the company says they can’t do it, tell them that you’ll be closing your account this week and transferring your balance to a competitor who offers better rates. Have the name of the competitor ready so they take you seriously. In many cases, you can cut your rate in half simply by asking — and you may even get them to waive the annual fee for your card.

A quick note on credit card interest: You only owe interest if you don’t pay off your balance in full every month. So, if you can spend within your means and pay off your cards completely, you’ll owe zero interest. That’s the ideal scenario. If you can’t pay them all off in full right now, paying a little more than the minimum will help save you on interest. If you continually only pay the minimum, you could be in the red for years.

By the way, don’t just look at your interest rate on your credit cards. What’s your mortgage rate? Now, in particular, is an excellent time to refinance because mortgage rates have been falling for months, due in part to the global uncertainty around the Covid-19 pandemic. If you can lower your rate by even just 0.5% or 1%, that could save you thousands of dollars over the course of your loan.

5. Who can help you get out of debt?

Now I want you to think about who you may need to turn to in order to help you get out of debt. Do you think you need a credit counselor to help guide you through the process? Or a friend or family member to hold you accountable? 

Even if you’re certain you can get out of debt on your own, if you have a family, you’re going to need their support. It’ll be hard to get out of the red if the people around you are spending you back into it. Along those same lines, be honest with your friends about your debt repayment journey. They can help hold you accountable and, if they’re good friends, will understand when you have to skip out of happy hour or opt out of that next big trip you’d planned.

6. What’s the worst thing that could happen if you don’t get out of debt?

The goal with this question is to get you to face your fear about your debt. Being in debt is an everyday thing. Debt is always with you. You have it right now. So my question to you is really simple: What will your life look like in the future if you don’t deal with your debt?

Facing your fear about your debt is not about being pessimistic — it’s about being honest. And the more honest you are right now, the better. So tell yourself the truth. Write down what your worst-case scenario could be. 

7. When will you start?

The sooner you start tackling your debt, the better. Pledge to start today. Pick a date that you want to be debt-free by. Write it down. Circle it on your calendar. 

Now that you’re in the right mindset to attack your debt, it’s time to actually get out (and stay out!) of debt once and for all.

I’ve compiled an action plan of six steps that will help you get out of the red, including how to use my DOLP (Done On Last Payment) strategy. Follow it to become debt-free once and for all.

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