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In this How to Get Out of Debt Guide we have walked through some basic steps for taking control of your finances. For some of you it may be a lot to digest. That's okay! Remember we are trying to form habits. Habits take time to develop but once you get them nailed down your momentum will really take off. Do not be discouraged. This guide and my book, How to Get Out of Debt is the result of me failing a lot! Learn from my failures and stick to your guns. Revisit the guide often to make sure you are on the right track.

We covered a lot of material and it would be good to recap. Habits are formed by repetition!

Getting Started - Gathering

In this step we took the time and gathered all of our financial papers together. If you have a spouse or financial partner this is a good place for both of you to get involved. Sharing the task will not only lighten the somewhat tedious task but it will also get both of you on the same page from the start. If there isn't a consensus to get out of debt then getting out of debt will be extremely difficult. One of the key factors in getting out of debt is to stop spending on consumer items (any item that is not an asset; ie. doesn't make you money). I strongly encourage you to talk with your spouse and get them involved.

Your Personal Financial Statement (PFS)

After we gathered all of our bills and financial documents together we then entered them into the PFS (a free download when you register with 5 Minutes a Day). We defined what Assets, Liabilities, Income and Expenses are and saw examples of each. Remember, the PFS is your financial report card. Each month you should revisit it and update your numbers. It sounds like work and it can be but for the little amount of time you invest you will know exactly where you stand financially. This will allow you to make good informed financial decisions.

Where You Stand on the Financial Podium

By looking at our personal financial statement we could easily determine our NET worth (what's left over after you subtract all of your debt from all of your assets). Hopefully you had a positive NET worth! Based on your NET Worth and Cash Flow we placed you on the financial podium - Gold, Silver, Bronze or Honorable Mention. Remember, there are no losers. We are looking forward to where we want to be not backward on any mistakes that we made. Yes, we will try not to repeat the mistakes of the past but we will keep our focus on the big, successful future ahead of you. Ultimately we all want to be off the podium and standing all alone on the Platinum stand. When we reach Platinum we are not only set financially but we are also mentoring, nurturing and positively influencing others around us. Don't wait until then to start developing these character traits!

Devising an Action Plan

A road map or plan is always a good thing. It saves time and keeps you focused on your goal. It is just like your ultimate picture of the "perfect" life. Living on the beach? Writing novels? Traveling through Europe? Having a plan on how to reach that goal will save you time and money and help your daily spending decisions. Quite simply, there are two action items that you need to be concerned with.

  • Increase your Assets
  • Decrease your Expenses

The KO Debt Plan™

By eliminating bad debt we become empowered to invest in good assets that make us money. The KO Debt Plan™ is a simple way to knock-out each debt one at a time. The more debts we KO the more momentum we have in becoming debt-free. It's as simple as starting with the smallest debt. Pay an additional $100 on your smallest debt and continue to make the minimum payments on all other debts. Start small and enjoy a quick victory and move on to the next smallest debt. Controlling your spending is a must. You won't be able to get out of debt until you stop adding new debt to your plate. This is the fastest way to pay down your debt. Trying to pay all of your debts down at the same time will take more effort, time and be much more difficult to accomplish. Start small as a Featherweight. Give yourself some time to become a Heavyweight in the ring.

Concluding Thoughts

My hope is that you know there are no losers when it comes to finances or life. We all have set backs but with some minor tweaks and education we can get on the right track. The financial podium's lowest step is Honorable Mention. We all have value even if we're not perfect in our financial lives. Having a plan is step number one. Use this guide as your plan and stick with it. Sit down with your personal financial statement 12 times a year. Yes, only 12 times. That is once a month. Reassess where you currently stand. Look at what you did right and what you can do better. Keep copies of each month so you can track your progress.

While you follow the steps in this guide:

1. Celebrate! - when you pay off a debt enjoy a treat like an ice cream soda or a modest dinner out with your sweetheart. Something you can pay cash for; no credit cards!

2. Focus on the big picture - what is your dream? What do you really want in life? Write it down and look at it first thing every day. Maybe it's a picture of a beach house or a blank piece of paper that has a headline of "My Debts" and directly under it it says, "NONE".

3. Remember you are not alone - Deuteronomy 6 says, "6 Be strong and courageous. Do not be afraid or terrified because of them, for the Lord your God goes with you; he will never leave you nor forsake you."

4. Don't give up! - Proverbs 13:4 says, "4 The soul of a lazy man desires, and has nothing; But the soul of the diligent shall be made rich."

Thanks for reading,

Next Step: Buy the How to Get Out of Debt Book!

Previous Step: The KO Debt Plan

The Rocky film series is a collection of great stories about an underdog battling through adversity and struggling to find success. Sometimes success wasn't even defined by a KO(knock-out) or victory. It was simply making it through each round and finishing the fight. As we step into the ring to battle our debt keep this in mind. We are fighting a battle that will be with us all of our lives. We need to form habits now and make one decision at a time. The decision to buy or save. To make another bill or to pay down an existing one. Each round will be filled with clever marketing tactics that will convince us we "need" this or that. Buyer beware.

For buy: waste time! For free: take. - Mrs. Fry

In order to get out of debt we need money. If you have no cash flow then it's going to be terribly difficult to pay down debt. One way to increase your income and cash flow is to get a second job. It will increase your income and leave less time for you to spend. It may not be an option for everyone. Another way to increase your income I mentioned in Part 4. It's by lowering your expenses. It may be difficult to do that. Take a look at the "want" list in Part 4. If you have no cash flow you will need to remove as many of these as possible. Remember this is only temporary until you get out of debt. After you are debt-free you can revisit these things on your "want" list and decide then if you are willing to spend your money that way.

How to Get Out of Debt - the KO Plan

We want to eliminate all of our bad debts (consumer debt), but we need to start with one at a time. Think of each debt as a boxing opponent. We would never want to step into the ring with someone like the undisputed heavyweight champion "Smokin'" Joe Frazier to start. (I mean when he was in his prime of course! R.I.P.) That would be suicide. We are going to start small. We'll take on the Featherweight contender first. In our case it's the smallest debt that you owe. Even if this debt has a lower interest rate we are still going to start with it. We are eliminating our debt and if we can cross one of our debtors off the list then we are off to a great start! So, take your lowest loan balance from the expense sheet on the PFS (Personal Financial Statement) that we filled out in Step 2. We will KO that debt first.

Step 1 - KO the Featherweight

  • Select lowest balance debt from Expense sheet
  • Pay minimum balance on all other debts
  • Use any extra money from cash flow to pay toward this debt
  • Temporarily put a hold on contributing to any savings or retirement account

Hopefully one of your debt balances is low so that you can experience victory early on. It may take a while. Something important to point out: You have to stop spending in order to pay down your debt. If you continue to spend then you will stay on the financial hamster wheel. It sounds easy. Spend less than you make but obviously it's not or you wouldn't be reading this. Keep your eyes on the big picture. What is your dream? More time? More money in the bank? Zero debt? How about a beach house? Write down what your perfect picture of life is and read it every day.

Credit Card #1 Payment: $100

In our example, we'll assume that you just paid $100 per month toward your lowest balance debt. Now that the debt is gone add that $100 to the new lowest balance debt payment. For example, let's say you just paid off a credit card (credit card #1). Now your next lowest balance debt is yet another credit card (credit card #2) that you are only paying the minimum $40 payment. Apply the $100 (that you were paying on credit card #1) to credit card #2 payment. So now your new credit card #2 payment will be $140. You are still paying the same amount monthly overall but you now have one bill less and are using the extra to power down your debt.

Step 2 - KO the Welterweight

  • Select the new lowest balance debt from Expense sheet
  • Pay minimum balance on all other debts
  • Use old payment from the first debt toward this debt

Old Credit Card #1 Payment: $100
New Credit Card #2 Payment: $40 + $100 = $140

Congratulations you are on to the welterweight! Continue this pattern until you reach your final debt. When you pay a debt off add that monthly payment to the next debt. Before long instead of making the minimum payments on several debts you will have combined all of those to form one huge payment. Let's say the next debt is a car loan for $300. After credit card #2 is paid off apply that $140 to the car payment.

Step 3 - KO the Middleweight

  • Select the new lowest balance debt from Expense sheet
  • Pay minimum balance on all other debts
  • Use old payment from the second debt toward this debt

Old Credit Card #2 Payment: $140
New Auto Loan Payment: $300 + $140 = $440

Let's take it one step further. Let's assume you have a 2nd mortgage on your house for an addition you built. The payment is $250 per month. Now that all of your other debt has been KO'd it's time to knock this debt out as well.

Step 4 - KO the Heavyweight

  • Select the new lowest balance debt from Expense sheet
  • Pay minimum balance on all other debts
  • Use old payment from the prior debt toward this debt

Old Auto Loan Payment: $440
New 2nd Mortgage Payment: $250 + $440 = $690

Do you see why this is called the KO plan? By applying an additional $440 you can power down the 2nd mortgage and cut the repayment time in half. If you started with more expenses than income these new found dollars will come in handy. Imagine having this final debt gone. Then you would have $690 extra each month!

Knocking out debt takes work. You will get jabbed and feel the pain of the blows but you will find victory in the end if you keep fighting each full round and don't give up. Successfully powering down your debt might not get you a trophy but you will learn the power of being debt-free. You will learn that true happiness doesn't come in a box or off a car lot or in any thing you can buy but rather from being content with what God has blessed you with.

Next Step: Finding Success

Previous Step: Devising an Action Plan

Is failing to plan really planning to fail? Personally, I do not think it is as clear cut as that. Nobody wants to fail and most people have a rough idea of what they are trying to accomplish, even if the plan is just in their mind. Having a plan is a good thing though. By having a road map or list of what you are trying to accomplish it will keep you focused and on track to accomplishing your goal. Plenty of tasks get done without a plan. Maybe not as quickly, efficiently or as cost effectively but in the end the job gets done.

At this point in the How to Get Out of Debt Guide it is time to devise an action plan that is specific to where you landed on the financial podium. The goal is to form habits that keep you out of debt and living a debt-free life. Our financial life is about income, expenses, assets and liabilities. By doing simple small things we will be able to increase our income, decrease our expenses, increase our assets and decrease our liabilities.

Below are the action items for each level of the podium.


  • Keep assets greater than liabilities
  • Keep expenses less than 65% of NET income
  • Donate at least 10% to charity
  • Freedom Fund should have at least 3 months of NET income
  • No consumer debt - credit cards, loans(personal, auto, boat) - mortgage is OK


  • Keep assets greater than liabilities
  • Lower expenses to less than 65% of NET income
  • Donate to charity
  • Freedom Fund should have at least 3 months of NET income
  • Remove consumer debt - credit cards, loans(personal, auto, boat) - mortgage is OK


  • Keep assets greater than liabilities
  • Increase income or lower expenses
  • Lower expenses to less than 65% of NET income
  • Donate to charity
  • Freedom Fund should have at least 3 months of NET income - Backburner for now!
  • Remove consumer debt - credit cards, loans(personal, auto, boat) - mortgage is OK

Honorable Mention

  • Increase assets or lower liabilities
  • Increase income or lower expenses
  • Lower expenses to less than 65% of NET income
  • Donate to charity - consider your time as an alternative to cash
  • Freedom Fund should have at least 3 months of NET income - Backburner for now!
  • Remove consumer debt - credit cards, loans(personal, auto, boat) - mortgage is OK

Increase Income / Decrease Expenses

The easiest way to increase your income is by removing some unnecessary expenses. One major expense that is really not a necessity at all is the cell phone. Cell phones cost at least double what a landline cost. Think about it. How often do you need it? Telephones are everywhere. Borrow someone else's phone for a minute if it's an emergency. Cell phones have become such a drain on people's budgets that it should be looked at first and foremost. The second is Cable and Dish/Satellite TV. A cell phone and cable TV are not necessities. Eliminate those two things and you will probably find an additional $100+ dollars per month to pay down your debt.

Below is a list of unnecessary expenses taken from my book (How to Get Out of Debt). Boost your income by lowering your expenses.

Wants (Unnecessary Expense)

  • Car (that has a payment associated with it)
  • Cable/Satellite TV
  • Personal Care
  • Cell Phone
  • Sporting Events
  • Dining Out
  • Scrapbooking
  • Music CDs/Instruments
  • Vacations/Trips - consider a free alternative
  • Home Improvements
  • Toys
  • Full price Designer Clothing and Jewelry - try TJMaxx as an alternative
  • Gifts - make something instead
  • Children Investment Accounts - not a necessity but a huge plus!
  • Magazine Subscriptions
  • Computers/Electronics

By eliminating these purchases and bills on a daily basis you will save thousands of dollars per year. It is much easier to decrease your spending than it is to get a raise from your boss. If you take on each expense individually it will be much easier. Focus on the prize. What do you really want in life? Do you want the freedom to choose what type of work you do? How about the freedom to choose how you spend the majority of your time? Maybe your ultimate goal is to simply be debt-free. Keep your eye on that and it will make skipping the morning latte a lot easier.

Next Step: The KO Debt Plan

Previous Step: Where You Stand on the Financial Podium

This guide is about taking 6 simple steps to get out of debt. Of course, most will assume you need to be in debt to use it. That is far from the truth. Even if you think you are doing well financially you can still learn and improve your situation even further. We started in the first 2 steps with gathering our financial documents and then entering them into the NET Worth Calculator. Today we will look at the numbers and explain what they mean. This will establish our starting point; ground-zero. Regardless of where you end up on the financial podium remember there are no losers. This is just the beginning. From here moving forward you have the choice to go right or left, to say yes or no, to improve your financial situation or make it worse. The past is behind you. Learn from it and choose to live your best life now!

Your NET Worth

How did you do? Open the NET Worth Calculator and go to the Personal Financial Statement tab (it's on the bottom). Do you have a positive NET Worth? How about your Cash Flow? Which example below fits your PFS?

Financial Podium

In this short guide I am simplifying the principles and system I share in my book, How to Get Out of Debt. We are concentrating on the major items of your financial report card; your NET Worth and your Cash Flow. In my system I have created a podium so you that you can visualize where you stand. Unlike the Olypics there are 4 steps on my financial podium. There are no losers just Honorable Mentions at the least.

Being honest and understanding that we are just at the beginning of your new financial journey, where do you stand on the podium?


  • Positive NET Worth
  • Positive Cash Flow
  • Expenses are less than 65% of NET Income


  • Positive NET Worth
  • Positive Cash Flow
  • Expenses exceed 65% of NET Income


  • Positive NET Worth
  • Negative Cash Flow
  • Expenses exceed 65% of NET Income

Honorable Mention

  • Negative NET Worth
  • Negative Cash Flow
  • Expenses exceed 65% of NET Income

There is one other scenario that I did not include and that is when you have a Negative NET Worth but Positive Cash Flow. If you fall into this category then put yourself on the Bronze step of the podium.

Do you see how simply changing a "greater than" to a "less than" or a "Negative" to a "Positive" can change your entire situation? The next thing we're going to dig into is the action plan you can take to start getting out of debt and living debt-free. We are going to concentrate on the small things that make the biggest impact. Think of yourself as David from the story of David versus Goliath. David was smaller, weaker and undoubtedly destined for defeat. Yet victory was his by being courageous, determined and using a few small rocks.

Next Step: Devising an action plan

Previous Step: Your Personal Financial Statement (PFS)

Now that we have gathered all of our paperwork in step 1 we are going to plug our numbers in and crunch them. Actually, I'll crunch them for you. I have created a simple spreadsheet for you to enter all of your assets, liabilities, income and expenses. As I mentioned before honesty is key. If you are not honest about your numbers then you will never know where to go from here or get out of debt. These numbers will determine your NET worth as well.

Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones. - Benjamin Franklin

Day 2 - Your Personal Financial Statement (PFS)

A personal financial statement or as we will refer to it a PFS, is your financial report card. It gives an overview of the assets, income, expenses and debts of you or your company. It is often used by banks to assess a person or corporation's financial health.

I have created a simple Financial NET Worth Calculator for you to download. You will need Microsoft Excel to open this or you can use Google to open it. If you do not have Microsoft Office you can create a new Google account and then upload it to your Google Drive. Google does a good job at conversion but if all else fails a simple pen and paper will work perfectly as well.

Step 1: Download NET Worth Calculator

This is just step two to get out of debt and live your best life. Even in this simple form (our Simplified Personal Financial Statement from the worksheet above) knowing your NET worth and your CASH FLOW is a great start. The thing to point out here is that there are no losers. You may not be a Gold or Platinum on the podium but at least you made it. The Honorable Mention is just a starting point. God has big plans for you. Right here and right now you have the choice to make the next move for good or for bad. The past is behind you. Lessons learned. It's time to make the best of this life. It may not be easy but it will definitely be worth it.

When things got hard, you started looking for something to blame. Like a Big Shadow. Let me tell you something you already know. The worlds aren’t all sunshine and rainbows. It's a very mean and nasty place and I don't care how tough you are it will beat you to your knees and keep you there permanently if you let it...

You've gotta hit as hard as life. It isn’t about how hard you hit, it's about how hard you can get hit and keep moving forward. How much can you take and keep moving forward? That's how winning is done.

If you know what you're worth, Go out and Get What Your Worth. But you gotta be willing to take the hits. And not pointing fingers saying you aren’t where you wanna be because of him or her or anybody. Cowards do that and that aren’t you. You're better than that. -Rocky Balboa (Rocky VI)

Next Step: Where You Stand on the Financial Podium

Previous Step: Getting Started