Debt Elimination

by Dennis Perry on October 7, 2011

Over the next several days, I will introduce you to my wealth system specifically as it relates to the money side of a Rich Life.

One of the most important aspects of financial wealth is to manage what we have now.  In coaching and live presentations, I generally start with that because I feel it is a necessary first step.

But, since debt is such a significant concern for people the world over, I decided to start with the description of a simple system to manage and ultimately eliminate the bad debt in our lives.

In general, there are 2 kinds of debt; so-called Good Debt and Bad Debt.

Bad debt is debt we take on to support our lifestyle.  This is credit card debt, auto loans, items purchased on X-days-same-as-cash types of programs, etc.

According to, the average credit card debt per household with credit card debt is $15,788 and the average interest rate is 14.35%!  Total US consumer debt is $2.42 Trillion!

This kind of debt will absolutely prevent you from creating financial independence.  This type of debt makes us slaves.  It creates that feeling of being trapped with no escape.  This is truly crippling and is one of the largest factors in people not achieving the level of wealth they desire.

Fortunately, there is a system for slowly and methodically eliminating this kind of debt.  It involves 5 rather simple steps.  Here they are:

1)      Make a list of all your debts: name of the company/person you owe money to, total balance owed on the liability, and the minimum monthly payment.  You don’t really need to concern yourself with the interest rate.  In this simple method of debt elimination, the interest rate is relatively insignificant.

2)      Divide the total balance due on the debt by the minimum monthly payment for each debt.  Write this answer down.  For example, let’s say you have a MasterCard with a balance of $1235.42 and the minimum monthly payment is $55.  Dividing the balance, $1235.42, by the minimum payment equals 22.46.  Do this for each debt that you have, writing down the answer for each debt.

3)      Re-sort the list from the lowest division answer from step 2 to the highest.  Again, as an example, if you have 3 debts and the division answers are 22.46, 17.19 and 123.68 the re-sorting would be 17.19, 22.46, and then 123.68.

4)      Determine an amount that you can commit to your debt plan every month.  Shoot for around $200 but if you can’t do that, come up with a number that you will consistently be able to use.  In a future post I will give you some suggestions on where to find the money to fund your debt plan.

5)      Pay-off the debt beginning with the lowest division answer from step 2.  The debt that is first on the list will get the amount of money from Step 4 that you are going to use to kick-start this program + it’s minimum monthly payment.  Everything else will get paid only its minimum payment.  When debt #1 is retired, you roll everything you were paying on it into the minimum payment for debt 2.  Continue this way until #2 is gone then repeat for step 3 and on till all debts are gone.

This relatively simple system is extremely powerful and can totally eliminate your debt in as little as 5 to 7 years.  The keys are to focus on only 1 debt at a time, consistently add your starter money to the equation, and don’t continue to add to your debt.

I am not really an advocate of cutting up credit cards but if you simply can’t develop the discipline to stop using them while you get your debt under control, then chop them up and remove the temptation.

I realize that there are many other potential factors which cannot all be addressed in an article of this type.  For personal consultation regarding your debt, feel free to contact me.

Let’s turn to Good Debt.  Certainly, not all debt or liabilities are bad.  In fact, I don’t personally know any financially wealthy people who are debt-free (and I know many very wealthy people).

To acquire investments such as rental real estate often requires that we assume a liability (a mortgage) to purchase the property.

Any liability/debt that is putting money into your pocket or will soon be is not considered bad debt and, for the most part, doesn’t need to be included in your debt elimination plans.

The deep recession we recently experienced has tempered my stance on good debt to a point.  We have to make sure we have enough reserves to weather any economic downturns because even good debt can take you under if you are not careful.

I am aware of several very successful real estate investors who have been forced into bankruptcy because of the current housing woes.  Acquiring or taking on debt for investments is, for the most part, both necessary and good.  But, like anything else in life, moderation is the key.  Always be sure to have an exit plan if things don’t go as planned.

Make this day a great one and make your life truly rich in every way!

Till tomorrow…

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Eva Palmer October 15, 2011 at 2:29 pm

I would be very beneficial if we could learn this information before going into debt…I guess, it’s just part of the learning process…I’ll be following your upcoming blogs to learn more about managing wealth and eliminating debt!

Adelgazar con Hipnosis

Clare Delaney October 11, 2011 at 9:12 am

Credit card and other non-asset debt is horrible and as you say, it’s impossible to build a rich life with it present.

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Andrew Miner October 11, 2011 at 3:17 am

Would you say that a lease payment of $3,300 a month on a new 458 Italia is “Good” or “Bad” debt? Just curious… 🙂


John Moulder October 10, 2011 at 6:37 am

Very simple debt elimination plan . Anyone should be able to follow it to get debt under control .

Love Laws: Law of Shared Life October 9, 2011 at 11:41 am

Hi Wealth Doctor,

Yes, reducing and then removing bad debt from our lives is a great first step to creating personal financial freedom. Your advice is very helpful and practical. I appreciate how you talk about making the effort to pay what you actually can each month. When you see that this is going to take realistically 2 years + to do, do you recommend a life of deprivation during that time? Or periodic treats and rewards? I’ll be interested to see what you advise in forthcoming blog posts.

Happy Dating and Relationships,

April Braswell
Love Laws: Being Kind Is Relationship Attractive

Dennis Perry October 9, 2011 at 4:48 pm

I absolutely do NOT recommend a life of deprivation. That is not living a rich life. I will definitely write more in coming posts.

Thank you for your comments.

Annie Born October 8, 2011 at 2:21 pm

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Looking forward to tomorrow!
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Body Language October 7, 2011 at 6:45 pm

Thats… plenty of cash tied up. This makes me know that I will do my best to NOT get into debt more as I get older.

Thanks for the very interesting article on debt reduction, Dennis!

Mark Hogan

Kevin Bettencourt October 7, 2011 at 5:49 pm

This is a great debt elimination plan. Simple yet effective. I was taught long ago that in order to aquire wealth debt should be incurred when the purchase will appreciate.

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Sonya Lenzo October 7, 2011 at 4:30 pm

Has to be simple if even I can understand it! REally, a great tool….I could see myself doing this.
Sonya Lenzo

Rob Malone October 7, 2011 at 4:57 am

What a great system Dennis. I really like that – very well thougt out and very methodical way to eat that elephant one bite at a time.

I also agree on the tempering the “good” debt. Right now cash is king. There are some great deals out there but taking on debt in this economy is not for those who don’t have the reserves to survive a second or third dip.

Female body language October 7, 2011 at 3:11 am

Dennis, I like how you explain debt stacking in an easy way to understand.
Scott Sylvan Bell
Body language of women
Now go implement!

Michael Paulse October 7, 2011 at 1:19 am

That system for debt elimination was very nicely explained, Dennis. I understand it well enough to use.

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Cherie Miranda October 7, 2011 at 1:17 am

Very practical and systematic approach to debt elimination. Thanks!

Cherie Miranda
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Michael D Walker October 7, 2011 at 1:15 am

Excellent approach to systematically eliminating bad debt and giving yourself a better chance to create a rich life.

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Neil Dhawan October 7, 2011 at 12:35 am


Thank you for sharing a simple and effective debt-elimination plan. I know you speak of a creating a rich life as more than just acquiring financial wealth, however, at this point, the stress from drowning in debt is something that needs to be addressed – and you did so with a clear and easy plan.

Stay Extraordinary and Keep Doing Amazing Things, Neil
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